Lion Nathan said today (9 November) that it had seen a double digit rise in full year net profits, before significant items, on the back of a strong performance from the Australian beer business, which offset weaker results in New Zealand.

However, as it looked to invest in its beer brands and develop dark spirits brands, the company warned that earning growth in the short term would be reduced.

The company said net profit before tax (before significant items) reached A$224.8m, up 10.9% on last year and in line with expectations. Group earnings before interest, tax and amortisation (EBITA) before significant items increased 2.6% to A$434.3m.

Lion Nathan said it was boosted once again by a strong performance by its Australian beer business, where EBITA was up 6.3% to A$377.3m in challenging trading conditions. The company said the result was even better considering the context of a poor first quarter trading result where market volumes were well down on the same period last year and very competitive pricing in the market.

However, the performance in New Zealand was less encouraging. EBITA was A$69.8m, a fall of 14.6%.

"The New Zealand business has faced increasingly difficult trading conditions reflecting an extremely competitive market," the company said in a statement.

Lion Nathan added that the removal of stock weight was a major contributor to the lower profit result, reducing annual beer volume by 2.6% and accounting for around 40% of the 2005 beer volume reduction.

The group's wine and spirits business saw earnings before interest, tax, amortisation, significant items and SGARA up 21.4% to A$18.7m. The result was driven by double digit growth in EBITAS at Wither Hills, Argyle and the New Zealand wine and spirits division, offset by lower earnings at the Australian wine group.

"Australian market conditions were particularly challenging with the oversupply of grapes and excess bulk wine contributing to a highly competitive market environment," the company said.

Looking forward, Lion Nathan warned that increased brand investment in Australia may result in more moderate earnings growth from its beer business in the short term.
In New Zealand, the company said that the growth profile would be generally flat for the next three years as efficiency and productivity savings are invested into the brands.

Overall, the company said: "Lion Nathan is about to enter a period of more moderate earnings growth. This is due to the planned higher marketing investment in core beer brands combined with a flat profit outlook for New Zealand as that business reorganises and reinvests profit to leverage its full brand portfolio and scale."

The company added that it would be investing in the development and growth of dark spirits brands.

In the short term, this will lead to around 5% underlying earnings growth for the group with higher growth rates forecast over the medium term as these initiatives reach scale and generate a return above their cost of capital.