investing for growth for personal use only2008/03/18 · • australia – strong revenue growth...

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BUSINESS UPDATE TO US PRIVATE PLACEMENT MARKET

Rob Murray - CEOJamie Tomlinson - CFO18 March 2008

INVESTING FOR GROWTH

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Lion Nathan

Disclaimer:

This document has been prepared for the general information of investors. The information contained herein is believed to be accurate but we give no warranty of accuracy or reliability and take no responsibility for accuracy and reliability. No investment decision should be taken on the basis of the information contained herein.

David Davies, Group Treasurerph: + 61 2 9290-6631fax: + 61 2 9290-6673e-mail: [email protected]

Michael Roberts, Investor Relations Director

ph: + 61 2 9290-6615

fax: + 61 2 9290-6674

e-mail: [email protected]

or visit our website at: www.lion-nathan.com

Unless indicated otherwise, all $ are Australian.

For additional information, contact:

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Lion Nathan

1. Group Business Overview 4

2. Corporate Strategy 12

3. Business Update 17– Investing in brands 19– Investing in breweries 23– Investing in people 29

4. Boag’s acquisition 33

5. Debt Review 35

6. Glossary 43

OVERVIEW I STRATEGY I UPDATE I BOAG’s ACQUISITION I DEBT REVIEW I GLOSSARY

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Who are we?

Lion Nathan is an Australasian premium alcoholic beverages co.

• Alcoholic beverages: beer, wine, spirits and RTDs

• 8 key breweries, 8 wineries, 44 retail outlets (Liquor King, NZ)

• 3,000 strong team in Australia, New Zealand, USA, UK


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Who are we?

Lion Nathan is an Australasian premium alcoholic beverages co.

Our Businesses

• Lion Nathan Australia

– Lion Nathan Australia

– Heineken Lion

– Bacardi Lion

– J Boag & Son

• Lion Nathan New Zealand

– New Zealand Breweries

– Lion Liquor Retail (Liquor King)

– Lion Nathan Wines & Spirits (NZ)

– Contract Bottling Company

– Maltexo

• Lion Nathan Wine Group

– Australian Wine Group

– Wither Hills

– Argyle

– Fine Wine Partners

Our Businesses

• Lion Nathan Australia

– Beer, spirits, ready to drinks (RTDs)

• Lion Nathan New Zealand

– Beer – domestic

– Beer – international distribution

– Wine, spirits & RTD distribution

– Liquor retailing

– Contract Bottling

• Lion Nathan Wine Group

– Fine wine brand ownership

– Fine Wine Partners wine distribution business


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Key facts – FY2007 (AIFRS)

Australia New Zealand Wine Total

Net Sales Revenue (A$m) 1,287 514 166 1,967

Share of total assets (%) * 74 14 12 100

Share of total EBIT (excl. corp.) (%) ** 82 15 3 100

EBIT margin (%) ** 32 15 8 24

Beer Market share (volume %)- September 2007 42 51 n/a n/a

* AIFRS assets at September 2007 excluding corporate and unallocated assets

** EBIT before one-time, significant items and SGARA


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Our breweries

Castlemaine Castlemaine PerkinsPerkins

Brisbane

Swan Swan Perth

SABSABAdelaide

TooheysTooheysSydney

LionLionAuckland

MacsMacsNelson

SpeightsSpeightsDunedin

MacsMacsWellington

CanterburyCanterburyChristchurch

CBCCBCAuckland

MSBMSBSydney

Key Breweries

Craft Breweries

Spirits/RTD


J Boag & SonJ Boag & SonLauncestonLaunceston

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Our wineries

PetalumaPetaluma

Adelaide Hills, Coonawarra,

Clare

SmithbrookSmithbrookPemberton

KnappsteinKnappsteinClare Valley

St HallettSt Hallett

Barossa Valley

MitcheltonMitchelton

Central Victoria

StonierStonier

Mornington Peninsula

Wither HillsWither HillsMarlborough

ArgyleArgyleOregon

TatachillaTatachillaMcLaren Vale


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180.1

202.7

224.8

241.5

259.0267.2

50.248.6

45.3

42.1

37.9

33.7100.0

120.0

140.0

160.0

180.0

200.0

220.0

240.0

260.0

280.0

2003 2004 2005 2005 2006 2007

30.0

35.0

40.0

45.0

50.0

55.0

Group NPAT / EPS (pre-significant items)

Consistent growth in net profit after tax and earnings per share

EPScents

*Pre goodwill amortisation

AGAAP AIFRS

NPATCAGR

+ 10.4%

EPSCAGR

+ 10.5%

NPAT$m

3.2%

38.7*

41.7*

45.0*

45.3

50.2

48.6


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Result history - earnings

Robust growth in revenue and profit

5 year Normalised History *2003 2004 2005 2006 2007

5 year CAGR

2007 vs YAGO

Net Revenue (incl China to 2004)

1,772.2 1,841.1 1,757.5 1,845.6 1,967.0 2.6% 6.6%

EBITA / EBIT (AIFRS) 406.1 423.4 434.5 455.2 472.4 3.9% 3.8%

LNA EBITA* / EBIT (AIFRS) 330.5 355.0 370.0 394.4 413.2 5.7% 4.8%

NPAT 180.1 202.7 241.5 259.0 267.2 10.4% 3.2%

Goodwill amortisation 26.9 20.1 0 0 0 n/a n/a

EPS 33.7 37.9 45.3 48.6 50.2 10.5% 3.3%

Core EPS (NPAT pre goodwill amortisation)

38.7 41.7 45.3 48.6 50.2 6.7% 3.3%

AGAAP AIFRS


Excluding significant items

* LNA EBITA represents Lion Nathan Australia EBITAFor

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Lion Nathan





5. Debt Review 35

6. Glossary 43


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We have a vision …

Sociability guides our vision, backed by great brands and great people


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… and defined strategies

Investing in the core business to drive growth

• Invest in core brands - drive value sharegrowth in premium and Power brands

• Innovate in core beer brand propositions• Wine to cover cost of capital

Core transformation

Core value maximisation

New growth business creation

FUEL

ENGINE

TURBO

• Leverage full brand portfolio and scale in NZ• Attack cost base to maintain lower cost status• Build capability in brand building, customer

value creation and capital management

• Grow dark RTD/spirits category in LNA• Grow fine wine brands, especially in the US & UK• Acquire premium brands in chosen categories


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… and we are building strategic capability

Brand building

capability

Consumer engagement model developedMarketing capability program developedNew Insights and Innovation role introduced along with 10 Principles of Brand BuildingLion Keys developed to systematise the brand building methodology

��

Sales capability

Comprehensive capability program delivered for all field sales teamsSalesforce automation helping deliver fast, efficient, tailored solutions to customersCustomer management program developed with leading international customer insights firm

��

Leadership capability

Leadership Program developed for new and transitioning leadersComprehensive succession planningPeople and Brands Leadership Program rolled out to 320 leaders across the businessEvolved competency assessment program with 10 Behaviours That Add Value

��

Fast change capability

Drive rapid response to changing customer and consumer needsComprehensive strategy addressing all causal factors that may inhibit Fast Change Required behaviours built into new 10 Behaviours That Add Value model��

Capital Management

LN Way for Capital Management developedActive capital management strategy developed with implementation initiated in 2006Consequential ROCE & EVA targets in place across businessLN Way for M&A developed to build capability in JVs, alliances, M&A

��


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(20)

(10)

0

10

20

30

40

(5) 0 5 10 15 20 25

Australian alcoholic beverages landscape – economic profit margin and growth

Beer and RTDs are the most attractive alcoholic beverage segments

X Key LN opportunitySize = segment value ($M); X = Lion Nathan share LN strong hold today

Segment Value CAGR 04-07 (%)

Economic Profit (% of sales)

Dark RTDs

Premium beer

Mainstream beer

Bottled wine

Cask wine

Dark spirit

White RTD

White spirit

Attractive market segments

Unattractive

0

2

10 1

43

80

26

Fine Wine6


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Australian beer market

Australian beer market has been resilient and stable in all market conditions


Australian Beer Market Volume (bn litres)

1.0

1.3

1.6

1.9

Dec-92 Dec-95 Dec-98 Dec-01 Dec-04 Dec-07

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Lion Nathan





5. Debt Review 35

6. Glossary 43


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1st Quarter 2008 update

Investing for sustainable long-term growth

• Australia – strong revenue growth continues despite beer market decline of ~1%

• New Zealand – encouraging signs of growth. Beer volumes up 1.7%, with positive mix

shift. Wine and RTDs growing

• Wine – momentum continues. International distribution expansion slowed due to sale of

US distributor. Price realisation improving as market over-supply reduced

• Capex – FY08 forecast at $250 - $300 million including late stages of Australian brewery

spend & start of Auckland brewery construction

• FY08 brings challenges including barley costs, smoking bans. Barley cost increase of $10

million locked in. Aluminium and sugar effectively fully hedged

• FY08 NPAT (pre significant items) guidance range now $265 to $275 million including

$13 million after-tax loss impact of Boag’s

• Confident about prospect for significant earnings step-up from FY09


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• Focus corporate strategy on beer, spirits, RTD and fine wine in Australia and New Zealand (and exit non-performing businesses)

• Driving a “customer pull” business model (ceased trade loading)

• Up-weighted brand spend to 8-10% of sales revenue to build equity and consumer preference

• Focused effort around a group of high potential “Power Brands”

• Moved to a true multi beverage business model in NZ

• Successful innovation program has driven strong incremental revenue

• Entered spirits and RTD market in Australia

• Established Fine Wine Partners in Australia

• Purchased J Boag & Son

Brands

Strategy

Investing in our business – brands, breweries & people

Doing what we said we would do


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Investing in Brands


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Investing in Brands


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Investing in Brands


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• Incremental ~$100m investment on Tooheys & Castlemaine XXXX breweries over 4 years for sustainable low cost producer status

• Sold current Auckland brewery site for NZ$162 million

• Acquired new Auckland brewery site & commenced production of new NZ$250 million brewery, spirit/RTD & warehouse facility

• Established BevChain, a shared industry distribution model

• Re-configured metro distribution model in NSW

• Improved environmental standards across all breweries & achieved Greenhouse Challenge Plus leadership in 2007

• Commenced construction of water treatment plant at Castlemaine XXXX brewery to save 1.1 million litres of water per day

Breweries

Strategy




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Investing in Breweries – Tooheys & Castlemaie XXXX

Tooheys processingbuilding

Castlemaine XXXX packaging building

Castlemaine XXXX Water treatment building


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Tooheys Castlemaine XXXX

Utilities, cellar automation & beer processing

• Boiler replacement

• Air, refrigeration and electrical systems upgrades

• Energy Management System improvements

• Upgrade and automation of beer processing to packaging

Packaging development

• De-link stubby and can lines

– Install new can line

• Increase speed and flexibility of other bottle packaging lines

– Replace bottle palletisers

– Replace bottle filler

• De-link bottle and can lines

– Install new pasteuriser

• Replace palletisers with robotics

• Increase packaging flexibility

– Relocate new and existing packaging equipment in building extension

Investing in Breweries – Tooheys & Castlemaine XXXX


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Investing in Breweries – new Auckland Brewery

Key Objectives

• High quality, reliable production

• Improved customer responsiveness (flexibility & agility)

• Efficient & innovative layout

• Low cost

• Mixture of new and existing equipment

• Safe and enjoyable place to work

• Clean & green

– Meets international environmental best practice standards

• Net additional spend over staying at old site of ~NZ$40 million for $10 - $15 million EBITDA per annum savings from FY12

Commencement of earthworks at new Auckland site


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• BevChain industry-leading initiative implemented in October 2006

• 50-50 joint venture with Linfox

• Warehousing and distribution services to Lion Nathan Australia and

other industry participants

• Stand-alone management and board

Investing in Supply Chain – BevChain

Pro-active in industry-shaping initiatives


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• Extended participation in achievement programs & enhanced achievement culture

• Increased people engagement scores

• Invested in sales and marketing as a core competency

• Invested in sales technology to improve productivity

• In-sourced strategy development to allow our people to guide our future and to improve engagement

• Consistently recognised as a leading employer

• Extended planning horizon so that we do the right thing for the long term

People

Strategy




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Investing in People

76 people

Pilot LN induction

developed

192 people

133 people

150 people

Leadership Program 219 leaders

Endeavour 112 leaders

Coaching for Success 140 people

Talsico

Goal Oriented Learning

KnowledgeKnowledgeSkillsSkills ToolsTools

BehavioursBehaviours


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Investing in People

• Ranked 2nd in Australia/NZ in

Hewitt/Fortune global survey

• Ranked 9th Asia Pacific

Region

Lion Nathan recognised in the “Top Company for Leaders” list


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Lion Nathan





5. Debt Review 35

6. Glossary 43


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Boag’s acquisition

Highly attractive & strategic acquisition

• Acquired Tasmanian brewer J Boag & Son for $325 million in January 2008

• Highly strategic and complementary acquisition

• Strong portfolio & geographic fit

• Integration proceeding smoothly

• Arranged early termination of mainland distribution agreement with Foster’s

• Arranged permanent funding for acquisition at end of January 2008


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Boag’s acquisition – FY08 financial impact

Boag’s will meet acquisition criteria and be EPS accretive in FY09

Guidance - FY08 impact of Boag’s acquisition $m

EBIT (January to September 2008) plus synergy savings,plus net margin on Jan-June sales, less margin on ex-CUB stock 10

Restructuring & other integration costs (one-time items) (8)

Total EBIT including one-time items 2

Interest cost (21)

Tax 6

NPAT (13)

Cents per share impact (2.4)

When the Boag’s acquisition was announced, we said that it would be 1.7 cents per share dilutive to FY08 earnings per share plus the impact of integration, transaction* and distribution termination* costs, and other one-time items, which were unknown at the time

The costs are now more accurately able to be quantified as set out below:

* Transaction costs including advisor and legal fees (excluded from the table above) will be capitalised as part of the acquisition price. Also excluded from the table above, the previously disclosed $6.4 million payment by Boag’s to Foster’s for early termination of the mainland Australia distribution agreement will form part of the acquired business value


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Boags Acquisition Funding

Long term funding secured on attractive terms

• Prior to acquisition announcement, established a A$400m 364 day bridge facility, maturing Nov 08

• After acquisition announced, existing bank panel invited to increase term bi-lateral facilities to fund Boags A$325m, a US$60m USPP maturity in February 08 and forecast CAPEX requirements for 2008

• A$450m accepted, agreed and documented by January 31st 2008

• An additional $50m raised following a subsequent offer to increase - agreed and documented during February 2008

• All debt raised in 3, 4 and 5 year tranches on a revolving basis with weighted average maturity of 4.4 years

• Existing standard loan documentation used to document new facilities

• The new funding was completed with no new conditions or covenants at very competitive pricing


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Lion Nathan





5. Debt Review 36

6. Glossary 43


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Funding and Capital Management

Program in place to re-finance F 09 debt maturities

• Lion Nathan currently has almost A$2bn of committed senior term debt facilities

– Plus additional A$100m of short term uncommitted call facilities(used only to smooth cyclical cashflows and do not count as “headroom”)

• No debt maturities in the remainder of the financial year to 30 Sept 2008

• Debt maturities of A$535m in financial year ending 30 Sept 2009

– Currently evaluating a broad range of funding options for these maturities

– Previous successful access to US Private Placement market makes it attractive later in 2008 should market conditions improve

• Further capital management is off the agenda for the foreseeable future due to Boags acquisition and planned Capex for 2008-2010

– Current dividend payout ratio of 80% of operating profit after tax will be maintained

– Investment grade credit rating will be maintained.


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0

100

200

300

400

500

600

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Bank Panel USPP Receivables

Debt Facility Maturity Profile – at Feb 2008

Total Funding A$m

Bank Panel 1,100

USPP 704

Receivables 160

Total 1,964

• Includes new Boags facilities

• A$400m bridge not included

• Weighted average debt maturity profile greater than 3 years

• Interest rate hedging extends for 5 years plus the current financial year. FY08 greater than 70% hedged.

• All hedging complies with International Accounting Standards

• Diversified funding source including a bank panel of 7 banks

• Credit rating - S & P BBB- and Moody’s Baa2

• Lion Nathan has no exposure to US “sub prime” markets and no material exposure to a US recession


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FY07 Key Ratios

Further improvement in key ratios

Pre Significant Items, Includes One-Time Items

FY07 FY06 B (W)

EPS* Cents 50.0 48.5 3.1%

Dividend cover Times 1.3 1.2 0.1t

Tax rate % 30.2 30.9 0.7pp

EBITDA / Interest cover Times 6.3 6.7 (0.4t)

Debt to EBITDA Times 2.2 2.3 0.1t

FFO to Debt % 29.5 28.8 0.7pp

* Calculated using total number of shares on issue (i.e. includes shares held by the Lion Nathan Achievement Rights Trust)


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US Private Placement - Debt Covenants History

Debt Coverage Interest Coverage Indebtedness

Sep-07 2.3 5.4 n/a

Mar-07 2.5 5.3 n/a

Sep-06 2.4 6.5 n/a

Mar-06 2.2 6.2 * n/a

Sep-05 2.2 n/a 6.2% **

Mar-05 2.3 n/a 6.6%

Sep-04 2.6 n/a 6.6%

Mar-04 3.1 n/a 0.2%

Sep-03 3.0 n/a 0.2%

Mar-03 3.2 n/a 0.3%

Sep-02 3.2 n/a 0.6%

Mar-02 3.3 n/a 0.5%

Indebtedness/Consol Net Worth

< 20%

Lion Nathan Debt Covenants 5 Year History

Net Debt/EBITDA

< 4 times

EBITDA/Net Interest

>3 timesYear/s

Financial Year End FY 2003 FY 2004 FY 2005 FY 2006 FY 2007

Net Debt A$m' 1435 1310.7 1109 1237.3 1237.8

Lion Nathan - Net Debt History

• Lion Nathan currently has 2 financial covenants* on US Private Placement (USPP) issues:

• Debt coverage, calculated as Net Debt / EBITDA: < 4 times

• Interest cover, calculated as EBITDA / Net interest expense: > 3 times


* Prior to Sept 2005, Lion Nathan USPP debt issues contained an indebtedness covenant. This was replaced with the Interest Coverage covenant in March 2006.

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Australia and New Zealand Economic Performance

Australia and New Zealand

• are enjoying one of their longest periods of continuous economic growth, coupled with the lowest levels of unemployment in decades.

• are in interest rate tightening cycles as their central banks seek to contain and reduce inflation driven by resource constraints, almost full employment and the long period of economic expansion

• Have currencies at post float highs supported by strong commodity prices (Australia –minerals and NZ – dairy products) combined with a weak US dollar

In addition:

Australia

• growth forecast to be 3.8% in 2008 after 3.9% in 2007, with a trend growth rate of 3.2%. Domestic demand grew 5.7% in the year to December.

• business investment is in the midst of a long expansion driven by emerging world demand and a once-in-a-generation terms of trade boom and strong domestic demand

• household income will be supported by further tax cuts later this year, partially offsetting interest rates rises.

New Zealand• growth is forecasted to be around 3.0% in 2008, with unemployment remaining low at 3.3%

• business investment is expected to grow by 4.3% during 2008, with even stronger growth forecast for 2009 to address current capacity utilisation constraints


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• Attractive investment

• Robust earnings and strong cash flow

• Focused and disciplined strategy

• Positioned for growth

• Disciplined capital management and acquisition criteria

• Doing the right thing for the long term

Lion Nathan – investment proposition

Summary

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Lion Nathan




4. Boag’s acquisition & 1Q08 update 32

5. Debt Review 35

6. Glossary 44


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Glossary

• Brand shorthand– HP – Hahn Premium TED – Tooheys Extra Dry

– HPL – Hahn Premium Light TN – Tooheys New

– HSD – Hahn Super Dry XG – XXXX Gold

• Power brands – Australia (2007: pre Boag’s)– Tooheys New Tooheys Extra Dry

– XXXX Gold XXXX Bitter

– Hahn Super Dry Hahn Premium Light

– Domestic Premium - Hahn Premium & James Squire brands

– International Premium - Heineken brands & Beck’s

• Power beer brands – New Zealand– Speight’s brands Lion Red

– Steinlager Classic Steinlager Pure

– Mac’s brands Stella Artois

– Corona

• Financial and other shorthand– AGAAP Australia Generally Accepted Accounting Principles

– AIFRS Australian equivalent International Financial Reporting Standards

– NPAT Net profit after tax

– EPS Earnings per share

– CAGR Compound annual growth rate

– YAGO Comparison to year ago

– RTD Ready to drink


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investing for growth for personal use only2008/03/18 · • australia – strong revenue growth...

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