Exclusive - Lion Nathan to Extend Markets

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Lion Nathan is developing innovative business proposals that could see the New Zealand brewer move into supplying glassware, towels and other products for its customers, CEO Gordon Cairns told

In an exclusive interview he said the company is also looking at developing wine, spirits and drinking water production and may even add financial services and equipment provision to its portfolio in a bid to boost its flagging shareprice.

"We are seen as an old economy stock," Cairns told just-drinks. "Beer consumption is in decline in the developed world. Most of our business is in domestic markets so to see improvement you have to reduce costs. But as we have seen with Anheuser-Busch (the US brewing giant) and Kirin (the Japanese brewer) spectacular results do not stop the shareprice declining."

LN owns the popular Castlemaine XXXX and Steinlager brands and breweries and is mortal foes with the other major Australiasian brewer, Foster's Brewing Group. It has seen its share price struggle at more than 25% below last year's high. Cairns believes this is largely due to hi-tech stocks being the current stockmarket fashion.

There are two ways, he says, that the share price will bounce back. The first is canny investors spotting an undervalued bargain and the second is for the company to reposition itself so it is seen as high growth.

"There are external options and internal options for growth. If we try to avoid the jargon and look at our customers they are essentially hoteliers and bar owners. They buy beer and they buy a lot of other things as well. We don't provide these things and some are not being provided with the professionalism that we bring to beer supply.

"We are looking to go all the way, not just the narrow band of adding products like wines, spirits, soft drinks and water…Our customers buy a wide range of things like equipment, financial services, utilities and commodities like glassware and towels. Only 11% of our customers' total expenditure is actually on beer so there is huge growth potential there."

But LN is also working hard at the lucrative e-commerce business and Cairns admits that a "significant amount of time is being spent" on these plans. But he is staying tight-lipped of the specifics of projects in progress.

Cairns also hints that acquisition may be an option in strengthening Lion Nathan's domestic position against the might of Foster's. He refuses to be drawn on targets but analysts have long suspected that Tasmanian-based J Boag & Sons may be in the company's sights.

Again Cairns refuses to be drawn on this but says Boag is a "first class company". Asked about the sort of valuation Boag's might command, Cairns says: "The current stock price is 90c a share and I think the market is properly informed." But he said the brewer will not be following the UK brewers who have attempted to make their stock more attractive by moving into leisure and hotels.

"I don't want to go into areas the UK brewers have gone as we don't have the expertise in that area. Australia and New Zealand are the most profitable brewing markets in the world and unlike the UK and Europe they are relatively isolated which is a barrier to entry in itself. And because there are only two main suppliers that is more profitable."

Lion Nathan's major non-Australasian expansion is in China, which now accounts for 10% of total revenues. But the operation is losing money hand over fist and Cairns says that while he expects to move the division towards profitability if there is no improvement the company will not stay in China.

On its home-turf, where the company's Steinlager beer is a national institution, Lion Nathan has been handling premium brands like Stella Artois. This is another side of the business that is likely to see more attention with Cairns hinting that "handling" may become a more involved relationship, particularly as the costs of transporting beers 12,000 miles from Europe to New Zealand prohibitive.

In the short term Lion Nathan will reveal first-half results on April 28 and Cairns says the figures should be "very encouraging". But until Lion Nathan can show significant new growth potential its share price will continue to lag.

David Robertson
just-drinks Asia-Pacific Correspondent

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