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DB annual profit gains 8% as brewer fattens margins on flat revenue

Friday 9th June 2017

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DB Breweries, whose managing director Andy Routley this week announced his exit, lifted annual profit 8 percent in 2016 as the country's second-biggest liquor company fattened gross margins in the face of largely flat revenue.

The local liquor company owned by Dutch brewing giant Heineken reported net profit of $27.1 million in calendar 2016, up from $25.1 million a year earlier, financial statements lodged with the Companies Office show. Revenue rose 2.7 percent to $499.9 million, recovering some ground from 2015 when sales were down, while the cost of excise duty, raw materials and packaging edged up 0.1 percent to $284.7 million. That helped widen DB's gross margin to 43 percent from 42.1 percent in 2015.

DB has been grappling with falling beer consumption and a growing demand for boutique products, with sales of craft beer on the rise. That's spurred the likes of DB and rival Lion to buy their smaller craft beer rivals, the most recent being DB's acquisition of Tuatara Brewing Co in January.

The latest accounts acknowledge the acquisition after the Dec. 31 balance date, while keeping the price paid secret, and saying the initial accounting for the deal completed on Jan. 31 and the fair value of the assets and liabilities acquired hadn't been finished by the time the accounts were signed off on May 25.

Tuatara's cornerstone shareholder Rangatira Investments valued its 36 percent stake at $3.6 million as at Sept. 30, implying the entire business was worth $10 million at the time, and the fund manager this month booked an $8.6 million gain on the sale of various investments, including its share of Tuatara.

DB boosted its advertising and promotional spend in the year to $32.2 million from $29.1 million, lagging behind the pace of increase by larger rival Lion, whose sales and marketing spend rose 13 percent to $77.5 million in the 12 months ended Sept. 30, 2016.

In contrast, NZX-listed craft beer maker Moa Group, which is led by former ad executive Geoff Ross, only increased its sales and marketing spend 4.8 percent to $2.4 million in the year ended March 31 in a year when revenue jumped 26 percent to $10.2 million.

Liquor advertising remains a fraught subject in New Zealand. Research this year from the University of Otago found alcohol sponsorship in New Zealand was prevalent in international sport, and the academics threw their weight behind a recommendation in the 2014 ministerial forum on alcohol advertising and sponsorship to eventually ban alcohol sponsorship of sports.

DB's wage and salary bill, including restructuring costs, edged up to $45.2 million from $45.1 million a year earlier, while the brewer cut its headcount to 481 from 503. The bill for senior management also shrank, falling to $2.6 million from $3.9 million in 2015.

The local liquor group lifted its dividend to Dutch parent Heineken, paying $21 million in 2016 compared to $20.1 million a year earlier. Purchases from related parties, including management fees and royalties, rose to $28.1 million from $25.2 million, while sales to related parties increased to $2.1 million from $1.6 million.


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