June 15, 2001	atimes.com

Oceania Australian beer industry hearty and 'ale SYDNEY - Australia's brewing industry remains in good shape despite a declining trend in beer consumption, Moody's Investors Service said. Foster's Brewing Group Ltd, rated Baa1 by Moody's, and Lion Nathan Ltd, rated Baa2, dominate the Australian brewing industry with a combined market share of some 96 percent. Moody's said on Tuesday that the ratings outlooks for both Foster's and Lion were stable. The ratings agency said the Australian brewing industry provided sound fundamentals for its two key players and should continue to provide both companies with a strong cash flow over the medium term. This was despite the declining trend in per capita beer consumption and increased competition, Moody's said. In a recently released report titled "Australian Brewing Industry in a Conundrum: Strong cash flow, but where to spend it?", Moody's author and vice president Gary Lau said that a rational approach to pricing and focus on margin improvement supported sound industry fundamentals. "The two incumbents do not compete on price", Lau said. "Rather they compete in marketing, brand-building and distribution in order to protect their market share. Additionally, the industry has high entry barriers, making it difficult for new entrants. The real issue for both Foster's and Lion is how to prudently finance growth and new investment, while at the same time reducing debt levels," Lau said. Moody's report notes that this is a key rating factor. "With a mature local beer market and stagnant growth, both Foster's and Lion have been searching for growth opportunities in the overseas beer market. However, both have had mixed success, particularly in China, and are now mainly focusing on the wine industry," Lau said. Foster's recently acquired US-based Beringer Wine Estates and Lion has a stake in the New Zealand-based Montana Group. The investments substantially increased both companies' debt levels but Moody's believes that the acquired businesses are profitable and should complement their brewing operations. "The investments are in line with the companies' forward strategy and offer diversification opportunities and growth potential," Lau said. However, Moody's believes that beer will remain the major cash flow contributor for Foster's and Lion over the medium term. "Event risk associated with the search for growth opportunities, and participation in the consolidation of the wine industry through domestic and overseas acquisitions, is still high for both companies," Lau said. (Asia Pulse)

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