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Charting the changing fortunes of Lion Nathan and DB Group

By Peter V O'Brien

Friday 27th October 2000

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Lion Nathan's New Zealand-based shareholders will soon receive an annual report, which should dispel any doubts about the company's operating and financial base.

The preliminary report was issued last week. All figures were in Australian dollars, reflecting the group's domicile and head office shift to Australia.

Lion Nathan said the decision recognised the company's business had been transformed over the past 10 years with 70% of its assets and about 80% of earnings Australian-based.

The primary share listing was transferred to the Australian Stock Exchange.

A comparison of Lion Nathan with its main New Zealand brewing competitor, DB Group, over the past 10 years shows several similarities and just as many differences.

Both companies were "into everything" in 1990. Lion Corporation was two years into a merger with L D Nathan & Co and had interests in brewing, hotels, restaurants, wine and spirits, general merchandising through Deka and Farmers stores, and food through Woolworths and Big Fresh supermarkets.

DB Group arose from Magnum Corporation which, in turn, grew out of Rothmans after that company got out of the tobacco industry.

Brierley Investments owned 70% of Magnum which bought the then Dominion Breweries in 1987 and other liquor interests in the ensuing two years before moving into the Australian liquor industry.

Lion Nathan and Magnum realised they had a mess of interests in the 1990s and started rationalising the businesses, with Magnum, later DB Group, absorbing considerable losses, particularly when getting out of Australia,

Lion Nathan went back to the basic business. It disposed of all the inherited L D Nathan activities and has recently sold its Australian and New Zealand soft drinks businesses.

DB Group also moved out of soft drinks and liquor retailing, identifying its core businesses in 1998/99 as brewing and wine. It has retained franchising of the Liquorland retail name.

Those were the similarities; the differences were more marked.

Lion Nathan expanded overseas, while DB contracted back to its New Zealand base. DB sold its Corbans Wine subsidiary to Montana Group, a company in which Lion Nathan bought 25% of the capital earlier this year and currently holds 28.26%.

In financial terms the two companies were roughly the same size 10 years ago when shareholders' funds were compared, although Magnum's net profit was substantially ahead of Lion's.

Things changed during the 1990s. Lion Nathan's report for the year ended August 31 showed a net profit of $A130.24 million compared with $A100.22 million in the previous year.

Shareholders' funds were $A1.86 billion and total assets were $A3.46 billion.

The company's report was unaudited because it changed its balance date from August 31 to September 30 and will eventually issue audited accounts for the 13- month period.

DB Group's latest report was for the six months ended March 31. The full year's figures should be available in four to five weeks.

Half-year profit was $15.23 million, an 11.5% increase on the $13.66 million earned in the corresponding period of the previous year and well up on the $11.72 million in the full 1999 year when there were unusual items of $17.75 million after tax, related to closure costs and other writedowns net of a $5.05 million gain on asset sales.

DB's shareholders' funds were $241.13 million, or about 10% of Lion Nathan's after allowance for the currency conversion factor, and total assets were $340.42 million.

Both companies have engaged in share buybacks. Lion Nathan completed a buyback in July, acquiring 2.45% of the capital which left the major shareholder, Japan's Kirin Brewery Company, with 46% of the shares.

DB Group is cancelling one share for every two on issue, subject to the approval of shareholders and the High Court, repaying $3 for each share cancelled. The repayment comes from the proceeds of the Corbans Wines' sale.

DB had troubles in recent years but has overcome them. Lion Nathan did well in New Zealand and Australia but has a problem in its operations in China, where it lost $A24.3 million before interest and tax last year and $A27.2 million on the same basis in the previous year.

It will be interesting to see whether Lion Nathan becomes another of the many companies from many countries that went to China with visions of vast market, found things too tough and departed.

Investors like the brewers. Lion Nathan sold last week at $4.85 and DB $3.22. The respective highs for 1999/00 were $5.05 and $3.35 and the respective lows $3.31 and $2.12.

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