Craft beer the winner in Lion's profit results

Flavoured milk and New Zealand's booming craft beer sector are the bright spots in Lion's latest profit results. 

The company's Emerson's craft beer brand increasing sales by 49%, while it's latest acquisition, Panhead, increased production by 80% last year and is still struggling to keep up with demand. 

Sales of Dare Iced Coffee drink were also a winner, with volume up by 9.9%. Big M flavoured milks also generated 11% growth.

However, the company revealed that its overall operating earnings before interest and tax for the 12 months ending September 30, 2016 were $694.3 million, just below the previous year result of $694.6 million. Operating profit after tax was up $11.7 million to $280.1 million.

“Lion’s solid performance in a highly competitive global and domestic marketplace highlights the underlying strength of our core business and reflects our ongoing investment in brands and innovation,’’ Lion chief executive Stuart Irvine said.

“While consumer confidence remains fragile I am confident Lion Beer Australia will continue to make good progress, and the conclusion of Lion’s distribution agreement with ABInBev means Lion will be able to increase its focus on its core Lion and Kirin portfolio of strong brands.”

Among the challenges the company faced last year was the loss of distribution rights to Corona, the No.1 selling imported beer in Australia, following the AB InBev and SABMiller merger. The shift meant Lion moved to the No.2 spot in Australia's $14billion beer market behind CUB.

It also sold its Fine Wine Partners premium wine business to Accolade Wines.

And, while beer represents around 90% of Lion's total Australasian operations, sales were flat in the alcoholic beverages division, dragged down by mainstream labels. It's a better picture in the craft sector, with sales of James Squire 150 Lashes Pale Ale jumping almost 36% and Little Creatures Pale Ale increasing by 15% in volume last year. 

Across the Tasman, Lion managing director Rory Glass credited sales growth of its craft beers for the company's 12% gain in profit in 2016.

Net profit in New Zealand rose to $38.7 million in the 12 months ended September, from $34.7 million a year earlier. Sales rose 5% to $561 million.

"The amazing thing about Panhead is that we can sell every drop of beer it makes. It's a runaway train, and so far we just haven't been able to keep up with demand," Glass told NBR.

Emerson's will move to a new brewery in Dunedin in June and lift capacity to eight million litres a year from one million litres at its previous site, while Lion will continue to invest in Panhead to increase capacity to unlock its "full potential". 

"Our consumers are keen to experiment with new flavours and to trade up to more premium options across our portfolio, and this trend is reflected in our revenue results," Glass said.