Lion to pursue a new policy

Press, 16 July 1983, Page 21

Lion to pursue a new policy

The policy of diversification recently pursued by Lion Breweries, Ltd, was premature, according to the new managing director, Mr A. D. Myers, in the annual report. Mr Myers, who owns 18.4 per cent of Lion’s capital, said a review of the company’s future in structure, personnel, and planning should be completed this year, and would then be carried out on a planned basis.

Faced with a seemingly hostile tax and social environment, in the past decade the directors had consciously directed investment away from brewing and other activities, especially into hotels and restaurants, and later into areas unrelated to the company’s existing activities. Diners Club was bought for $3.5M and sold two years later at $3.26M. An investment of $2.5M in Penfolds Wines had meant that a write-off of $1.35M in the latest accounts had been necessary, he said. Lion had also recently sold the majority of its shares in Ballin Rattray, Ltd.

“In the future, real estate development projects are to be pursued only in relation to mainstream business activities.”

The company had now sold a number of those investments, and the balance was under review, Mr Myers said. “We have, in recent months, conducted a comprehensive review of all activities. Resulting from this review, a number of fundamental changes, affecting not only the physical assets of Lion, but also its administration, had begun.” These benefits would be seen in the medium and long term, but were designed to concentrate on the real expertise of the com-

pany in its three traditional areas — brewing, wines and spirits, and hotel and restaurants.

The company would look at diversifying into other areas from the vantage of a lean and profitable performer in its existing activities.

The current return on funds was not acceptable and not suitable as a base of expansion into new business, Mr Myers said. The losses in the share of the total brewing market in recent times underlined the need for the company to concentrate on its basic business.

Close attention was being given to marketing Lion’s basic products, and there was an awareness of the need to study consumer preferences more closely.

There was also a need for an upgrading and investment programme in brewing plant to ensure continued quality and cost efficiency. This had already started with a $2.5M upgrading of fermentation and storage facilities at the Auckland brewery. The export effort had been excellent. Sales were up 58.7 per cent in the year under review.

Decisions taken early in the export programme to reinvest earnings in developing markets were paying off. In the first three months of the present year exports were ahead 80 per cent, compared with the same period last year, he said. The total group net equity profit fell 24.1 per cent to $18,079,000 in the year to March 31, compared with the previous corresponding period. Equity profits fell from $J,190,000 to $473,000, capital gains were $4,608,000 ($6,508,000 previously), and there were write-offs of $2,537,000 in the latest year, including those arising from the Penfolds investment.

Group sales rose 22.1 per cent to $517,657,000, and the cost of sales increased 25.6 per cent to $336.7M. The pre-tax trading profit fell 10.9 per cent to $22.5M. The final profit whs after providing $943,000 more for depreciation at $14,735,000, but $1,405,000 less for tax at $6,221,000.

A recommended final ■ dividend of 9c a share cuts the annual rate from lie to 12.75 c a share (25.5 per cent) ; because of the dividend freeze. The dividend requirement is $8,325,000, and it is covered 2.1 times by the profit after allowing for the preference dividends. Shareholders’ funds rose $7,904,000 to $224,308,000, including ordinary capital up $359,000 to $32,684,000 after the redemption of 637,580 10 ' per cent specified preference shares of 50c each to 716,765 ordinary 50c units. Working capital increased $2,907,000 to $14,140,000, and the current ratio was steady at 1.1 to one.