Lion, which is 100 per cent owned by Kirin, has launched a strategic review of Dairy & Drinks and is considering options including selling the business entirely after completing a three-year restructuring process.
Lion Dairy & Drinks is Australia’s second-largest milk processor after Murray Goulburn, with an estimated 19 per cent share of the milk processing market, and buys close to 1 billion litres of milk a year, according to IBISWorld.
It owns category leading brands such as King Island and Southcape cheese, Dairy Farmers and Pura mIlk, Yoplait and Farmers Union yoghurt, Big M and Dare flavoured milk and Berri fruit juice.
However, sales and earnings have been in decline for years as the business struggled to recoup rising costs amid stiff competition from other processors and pricing pressure from Coles and Woolworths, including $1 a litre milk.
Kirin paid $2.8 billion for the then National Foods in 2007 and $910 million for NSW-based co-operative Dairy Farmers in 2008, but has struggled to achieve a satisfactory return on its investment.
The Japanese brewer has written down the value of Lion Dairy & Drinks by $2.14 billion since 2010 and, according to Street Talk was quietly testing the market for interest in the business in June last year.
New capabilities needed
Over the last three years, Lion has closed plants, shut down its international unit, sold its everyday cheese business, trimmed staff and slashed the number of product lines to reduce costs, reinvesting the savings into innovation and new product development.
The business appears to be finally turning around and Kirin is forecasting a 27 per cent increase in Dairy & Drinks earnings to $79 million on sales of $1.85 billion in 2018.
In 2017, sales fell 1.9 per cent to $1.78 billion after a 3 per cent fall in volumes, but operating profits rose 2.3 per cent to $62 million after cost reductions.
Lion chief executive Stuart Irvine, who took the helm from Rob Murray in December 2012, said on Tuesday the restructuring phase was now complete.
«The investments we have made have grown profitability and created a sound platform for future growth with our high-quality brands and leading Australian cold-chain distribution network at its heart,» Mr Irvine said.
Mr Irvine said Lion Dairy & Drinks had developed a new growth strategy which included accelerated innovation in high nutrition and better-for-you products and adjacent products, along with further supply chain efficiency initiatives.
«In order to reach its full potential and deliver its nutrition-focused growth strategy, LDD requires new capabilities and investment.
«It’s therefore appropriate before we commence another three-year plan to consider the best pathway forward for LDD,» he said.
The strategic review is expected to take no longer than four weeks. All options will be canvassed, including retaining and investing in the business and a sale.
Mr Irvine said it was ‘business as usual’ for Lion during the strategic review.
It is understood the company has not yet appointed external advisers.
Kirin also owns Australia’s second largest brewer, Lion Beer, which owns brands including Tooheys, XXXX, Hahn, James Boag and Little Creatures.
Lion’s total revenues, including beer, have fallen about 20 per cent over the last four years from $5.1 billion in 2013 to $4.04 billion in 2017 and earnings have fallen more than 10 per cent, from a reported $698 million in 2013 to $609 million.