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Lion Nathan Exceeds Guidance With Solid FY Result

F07 RESULTS MEDIA RELEASE
LION NATHAN EXCEEDS GUIDANCE WITH SOLID FULL YEAR RESULT

Brand Investment and NPD Drive Strong Revenue Growth
Significant investment in people, brands and production assets

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Sydney, 21 May 2007: Lion Nathan Limited (Lion Nathan) has exceeded guidance with a solid result, lifting operating Net Profit after Tax (“NPAT”) by 3.8% to $267.2 million for the year to 30 September 2007.

After the impact of individually significant items (ISIs), reported NPAT increased 24.4% to $282.1 million.

Group net sales revenue grew strongly, increasing 6.6% to $1.97 billion. Operating EBIT grew 4.1% to $472.4 million, while reported EBIT increased 10.4% to $452.7 million.

Lion Nathan CEO Rob Murray said: “We have continued to grow earnings and deliver strong cash flow while making a significant investment in the long term health of our business. We have made real progress in building people capability and investing in our brands and our production assets to achieve higher sustainable long term earnings growth from the 2009 financial year”.

“This result reflects a solid performance from all our business units. The strong revenue growth reflects successful brand and NPD1 investment in our core businesses, along with continued mix shift to national and premium brands,” Mr Murray continued.

Profit growth was achieved despite higher aluminium prices, higher barley costs due to the drought in Australia in addition to further investment to build a presence in the spirits and ready to drink (SRTD) market.

These and other factors contributed to a total increase in costs of $98.5 million (pre-tax) for the year.

Increased marketing investment drives strong growth in Australian power brands, Spirits and RTD strategy progressing well

Lion Nathan Australia (LNA) delivered a robust result with operating EBIT up 4.7% to $413.2 million. Net sales revenue grew 7.1% on a volume increase of 0.6% for the year. Overall, total LNA beer volume grew 0.4% while the total beer market was also up an estimated 0.4% on a 12-month MAT basis2.

The favourable volume, revenue and EBIT growth for the year was achieved predominantly as a result of Power brand3 growth, including a strong NPD element. Product innovation developed during the last 3 years contributed $50 million of this year’s incremental revenue with Hahn Super Dry, launched in September 2006 being the major catalyst.

Total Power brand volume grew 3.7% for the 12 months to September 2007, driven by Tooheys Extra Dry (27% volume growth), XXXX Gold (5%), Hahn Super Dry and international premium brands Heineken and Beck’s (18% growth combined). Power brands now account for 78% of portfolio volume compared to 65% five years ago, evidencing the focus and investment behind this portfolio over this period.

The mainstream segment continues to be affected by widening consumer repertoires and the shift to premium and mid-strength. Tooheys New, which was down 2% in revenue terms, was particularly affected by a softer NSW market, down 1.6% MAT4. Australia’s most popular light brand Hahn Premium Light again grew its share of a declining category with an 8% decline against the category volume decline of 11%.

In the Spirits and RTD segment McKenna Bourbon progressively moved to full national distribution during the year while the Company acquired the Inner Circle Rum brand and distillery in April, and recently relaunched the trademark.

Rob Murray said: “We have continued to invest substantially behind our power brands and we have placed a strong focus on targeted innovation to grow category value. This is reflected in a very strong revenue growth performance from our Australian business.

“Tooheys Extra Dry continues to achieve phenomenal growth and we are very satisfied with the progress of Hahn Super Dry. We continue to be delighted by the growth trajectory of XXXX Gold which, despite new market entrants has grown volume by 5% and revenue by 11%, and is growing faster than the mid-strength category both nationally and in Queensland.”5 “Our entry into the spirits and RTDs market in Australia is progressing well and the addition of the James Boag portfolio in 2008 will provide another impetus for future revenue and profit growth,” Mr Murray added.

Consistent operating performance in competitive New Zealand market

Consistent with expectations, operating EBIT in NZ dollar terms was in line with the prior period at NZ$86.7 million despite the highly competitive operating environment in New Zealand and higher commodity costs.

Overall, slightly lower beer earnings were offset by improved earnings from wines and spirits and other businesses consistent with the multi-beverage strategy implemented in New Zealand.

Overall, domestic beer revenue was up 2.1%6. Power brand7 volume was up 2% driven primarily by premium brands such as Corona, Mac’s, and Steinlager Classic, as well as the exciting new brand Steinlager Pure, which was ranked in the top 10 brands in total supermarkets (by value) within 6 weeks of launch.

International premium brands Corona and Stella Artois were up 40% and 4% respectively, while Steinlager Classic grew 3% over the year. In the mainstream category, key national brand Speights grew by 0.5% while Lion Red declined 8% with its more targeted geographic sales and marketing focus.

Wither Hills distribution transferred into the Lion Nathan New Zealand business part way into the 2006 year and contributed strongly to the 19% increase in wine volumes8 along with Lion Nathan’s Australian brands as well as Oyster Bay, Delegats and Riccadonna. Spirits volumes declined almost 15% over the year largely due to the loss of the Allied Domecq brand portfolio, while the RTD portfolio was likewise impacted, down more than 2%. The launch of McKenna Bourbon was well received by the New Zealand market and is performing above plan in early trading following the launch.

Rob Murray said: “The New Zealand “one business” operating structure covering beer, wine, spirits and RTDs has made good progress in a highly competitive market. There are encouraging signs of value growth and cost recovery in the New Zealand business, leading LNNZ to target a modest improvement in operating

EBIT of around 2% in 2008, consistent with the historical guidance for a lift in earnings for this business from FY08”.

Growth in key owned and agency brands drive improved Wine operating performance

Wine Group operating EBITS9 increased 37.1% to $13.3 million driven by robust key brand growth and lower overheads. A revenue increase of 11.6% was driven by a 3.7% increase in wine volume, improved mix and a re-classification of bulk wine sales to ‘Net Sales Revenue’ in the current year.

Owned brands such as St Hallett, Wither Hills and Petaluma made a strong contribution to the result.

Distribution of Australian and New Zealand premium wines in the UK and US markets continued to perform well. In the UK, the Bibendum partnership drove a 42% increase in volumes. The weaker US dollar constrained revenue growth from Wither Hills.

The vintage 2007 crush was down approximately 40% on the long-term average due to low rainfall and frost in certain vineyards. Vintage 2008 is expected to be again down on average but up on the 2007 figure.

Higher COGS from lower yields is driving industry pricing growth.

Rob Murray said: “This is a promising result. The focus of the Wine Group in 2008 will be to further improve its return on capital through international growth, increased market penetration of key brands as well as reviewing synergistic bolt-on brand opportunities to further enhance returns”.

Significant Investment in Production Assets

Total capital expenditure for the 2007 year was stable at around $110 million reflecting the second year of higher capital expenditure associated with Project Invest, stepping up from $76 million in the 2005 year. The expenditure will help the Company maintain low cost, efficient operations, increase flexibility, agility and quality and better serve the needs of customers and consumers. It will also provide further improvements in occupational health and safety and the environmental footprint of the Company’s breweries.

The majority of the additional spend has been concentrated on the Tooheys and Castlemaine XXXX breweries in Australia. Projects to date have included air, refrigeration and electrical systems upgrades; energy management systems improvements; upgrades to and automation of beer processing to packaging, as well as increasing packaging efficiency and flexibility through new and improved packaging line configuration and installation of new equipment such as fillers, pasteurisers and robotic palletisers. Lion Nathan recently announced that it would install a $16m water recycling facility at Castlemaine Perkins, which will achieve global best practice by reducing water use to less than 2.2 litres per litre of beer produced.

Strong dividend - payout ratio maintained at 80% of Operating NPAT

The Board has declared a final fully-franked dividend of 21 cents per share, an increase of 5%. The total annual dividend was 40 cents per share, up 2.6% on total ordinary dividends in 2006 and in line with the Company’s dividend payout ratio policy of 80% of operating NPAT.

Outlook

The outlook for the 2008 financial year is for a further improvement in operating performance, partly offset by higher barley costs due to the drought (additional $10 million pre-tax costs), smoking bans, the funding costs of planned higher capital expenditure and the continued investment in spirits and RTD growth. Overall cost of goods sold (COGS) per litre is expected to rise by approximately 4.5% in FY08, excluding any volume or mix impact.

Taking these factors into consideration, the operating NPAT guidance range for FY08 is set at $270-$280 million excluding the impact of the J. Boag & Son acquisition. J. Boag & Son will be EPS dilutive in FY08 and then EPS accretive in its first full year of ownership in the 2009 financial year10.

Due to the J Boag & Son acquisition and the remaining capital expenditure at the Tooheys and XXXX breweries to 2009 along with the construction costs of a new brewery in Auckland through to 2010, the Company will not be undertaking further capital management activities for the foreseeable future.

Rob Murray said: “Despite some short-term impacts in FY08, we intend to continue our focus on building sustainable long term growth through investment in brands, breweries and people to deliver shareholder value. The outlook is for a significant step up in earnings from the 2009 financial year”.

Highlights

• Operating NPAT11 up 3.8% to $267.2 million

• Group net sales revenue up 6.6% to $1.967 billion. Group operating EBIT up 4.1% to $472.4 million

• Australia - 7.1% revenue increase due to brand innovation and mix shift to national and premium brands. Operating EBIT up 4.7% to $413.2 million despite a flatter 2nd half beer market, higher commodity costs and planned RTD investment

• New Zealand - revenue up 4.7% (+4.2% in A$ terms). Operating EBIT stable at NZ$86.7 million in line with expectations, due to input cost increases and a highly competitive pricing environment

• Wine - operating EBIT (pre SGARA12) up 37.1% to $13.3 million continuing a strong trend in operating profit improvement.

• Project Invest - 2nd half pre-tax expenditure of $34.7 million, taking total FY07 spend to $39.8 million pre-tax ($27.6m post-tax), in line with guidance.

• Individually significant items – net $14.9 million gain after tax due to profit on sale of current Auckland brewery site and release of provision surplus arising from conclusion of tax audit, partly offset by Project Invest costs and Wine write-down

• Proposed acquisition of J Boag & Son Pty Limited (Boag) announced 8 November 2007. Highly complementary acquisition of prized brands providing growth prospects and strong synergies. Transaction expected to be completed January 2008

• Final dividend increased 1 cent to 21 cents per share, taking total annual dividend to 40 cents per share and 80% payout of operating NPAT

• Full year 2008 operating NPAT guidance range $270-$280 million (excluding Boag)

• Company remains on track for significant step-up in earnings from FY09

FOOTNOTES: 1 New product development

2 Company estimate

3 Australian Power brands comprise Tooheys New, Tooheys Extra Dry, XXXX Gold, XXXX Bitter, Hahn Super Dry, Hahn Premium, Hahn Premium Light, James Squire brands, Heineken brands and Beck’s

4 Company estimate

5 National mid-strength category growth is 4% - data source for Qld and national figures: A C Nielsen

6 Including inter-company sales to Lion Liquor Retail but excluding international sales

7 New Zealand Power brands: Speights brands, Lion Red, Steinlager Classic, Steinlager Pure, Mac’s, Stella Artois, Corona

8 When the new Wither Hills distribution is excluded, like for like wine volumes grew 9%

9 Earnings Before Interest, Tax and SGARA

10 For details of financial impact of the Boag acquisition, please refer to announcements made on 8 November 2007 and available on the Company website, www.lion-nathan.com

11 NPAT before one time and significant items

12 Self Generating and Re-Generating Assets


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