Kirin asks tyre-kickers to taste test Lion's dairy

28 Jun, 2017 09:58 AM
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Lion has a big share of the retail dairy products market, with its products sold in supermarkets and other retailers under a host of household brand names such as Dairy Farmers, Yoplait and Dare.
Lion has a big share of the retail dairy products market, with its products sold in supermarkets and other retailers under a host of household brand names such as Dairy Farmers, Yoplait and Dare.

Japanese beer giant Kirin Holdings is believed to be reconsidering the future of its Australian dairy business, Lion Dairy & Drinks.

The Australian Financial Review reported that it understands Kirin has quietly tested market appetite for the Australian milk, dairy beverages, yoghurt and cheese business, approaching large global food and dairy companies and other potential buyers.

It is understood Kirin has found some interest for parts of the Australian dairy unit - such as yoghurt and dairy beverages - but would prefer to find one buyer for the whole division.

Kirin's problem is that it is a big bite for any one buyer.

Lion's dairy business is the second-largest processor of milk and cream in the country. It buys close to 1 billion litres of milk each year, for an estimated 19.1 per cent share of the milk processing market, according to IBISWorld data. Only Murray Goulburn (21.1 per cent) processes more milk.

Lion has a bigger share of the retail dairy products market, with its products sold in supermarkets and other retailers under a host of household brand names such as Dairy Farmers, Yoplait and Dare.

Kirin has had its struggles with Lion Dairy & Drinks since buying the business almost 10 years ago. Kirin bought National Foods - as it was called - for $2.9 billion in November 2007, which included $1.9 billion debt.

Its sales the year earlier were $1.84 billion, which is about the same as what they were in 2016.

Kirin's focus has been on improving Lion Dairy & Drinks' profit margin in recent years, cutting costs and boosting sales at higher-margin brands such as Dare. Operating income was $72 million last year, for a 4 per cent margin, which was up from 2.3 per cent in 2015. The operating income margin is expected to increase again to 4.9 per cent this year.

Of course Kirin is not the only dairy industry participant struggling to make a buck.

Murray Goulburn made only a $39.8 million profit last financial year, on $2.8 billion revenue, has cut its farm gate milk price, is closing plants and last month announced a wide-ranging strategic review.

Interestingly, a number of tyre-kickers are said to be positioning around Murray Goulburn, seeking to pick up assets as part of new chief executive officer Ari Mervis' review. Bega, which launched a $162 million capital raising on Friday, and Fonterra are understood to be watching closely.

Should Kirin offload Lion Dairy & Drinks, it would leave the company with a large Australian alcohol business that makes more than $2.5 billion in annual sales.

AFR

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