Independent Liquor back in black on fatter margins in face of shrinking sales

The wider margins helped Independent Liquor keep gross profit flat at $106.2 million.

Independent Liquor NZ, which owns alcohol brands such as Woodstock Bourbon and Boundary Road beer, returned to profit in 2016 as the country's biggest RTD maker fattened its margins and slashed its marketing spend in the face of shrinking revenue.

The Papakura-based company posted a profit of $15.4 million in calendar 2016, turning around a loss of $727,000 a year earlier when the Asahi Group owned liquor company wrote down the value of its assets. Revenue shrank 11 percent to $351.9 million, however a bigger decline in the cost of sales helped fatten gross margins to 30.2 percent from 27.2 percent a year earlier.

Independent Liquor, founded by the late Michael Erceg, is the country's third-biggest beer brewer having launched its Boundary Road range in 2011, and like its bigger rivals - DB Breweries and Lion - Beer, Spirits & Wine (NZ) - has had to contend with a growing appetite for craft beer which has siphoned off demand for mainstream products.

DB and Lion have gone down the route of buying smaller niche rivals, and while DB managed to widen gross margins to 43 percent in calendar 2016 from 42.1 percent, Lion's margins shrank to 36.9 percent in the September 2016 year from 38.8 percent.

The wider margins helped Independent Liquor keep gross profit flat at $106.2 million, and the company eked out savings in sales and marketing, where it cut costs 32 percent to $29.2 million having ditched a retail network, The Mill discount liquor chain, a year earlier.

Independent Liquor paid $10.6 million in interest on loans in the year. It has an outstanding loan from Asahi's Australian arm of $149.9 million, on which it is paying 7 percent interest, greater than its current assets of $121 million. The notes to the accounts state that Asahi Holdings (Australia) has confirmed it will not call in the loan over the next 18 months.

Asahi bought Independent Liquor in 2011 for $1.5 billion from shareholders including buyout firms Pacific Equity Partners, Unitas Capital and Michael Erceg's widow. It later disputed the purchase price, accusing the vendors of over-egging the company's earnings, but later cut a deal with the private equity firms and wrote down the value of the business by more than $250 million.


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