Caps Off Or Can Him, Brewer In Glass Of His Own
Sydney Morning Herald
Saturday August 17, 2002
Lion's main man, Gordon Cairns, speaks of his role with pride.
Mark Todd reports.
When Gordon Cairns took over the running of Lion Nathan almost five years ago, he and his team were written off as a bunch of soft drink salesmen trying to run a beer business.
``Hopefully we've shown we know something about beer," says Cairns, who moved to Lion from Pepsi-Cola Australia.
Some analysts have gone so far as to suggest that Lion's beer division has in recent years actually got the better of arch-rival Foster's. Now, since Lion bought Petaluma and Banksia last year, there's doubt about the beer men running a wine business so in a sense Cairns has heard it all before.
Cairns jokes that the goal of building a substantial wine business is one of the things that keeps him awake at night. It also ``charges" him to get out of bed and into the office before 7.30am and keeps him there till late at night. Many of his meals are warmed in a microwave.
Other goals include creating a meaningful business in ready-to-drink beverages, or RTDs, and making a quid in China. And there's still more profit growth and market share left to squeeze out of the beer market.
The brewer recently reported that third-quarter volumes rose, albeit marginally, in what was supposed to be a stagnant market. This news, and the belief that the beer duopoly between Lion and Foster's is making good money for both, on Friday helped take the stock to an all-time high of $5.14, up 2c, from a year low of $4.16.
You can't accuse Cairns of aiming low. He's passionate about making Lion the most admired company in the land.
``There's a huge gulf between what people reasonably expect and what we deliver," he says. ``We've got a long way to go."
For Scottish-born Cairns, now 52, time has flown since he put his feet under the chief executive's desk in late 1997. Before Pepsi he was managing director of fast food business KFC, after stints at Frito Lay and Cadbury Schweppes.
As a young man his first job was at a pet food company. ``I learned that after you've been sampling pet food all day it's not a good idea to go out and try to get a girlfriend," he says.
So, how does it taste? ``Put it this way. There aren't many five-star restaurants selling pet food."
The next two years, until he retires in late 2004, may go just as quickly as the first five, and he has much to accomplish.
For a start, there's a great deal more potential in the share price. The stock is trading on a relatively undemanding price/earnings multiple around 17 times forecast 2001-02 net profit.
Yet there are valuations in the market well in excess of that some between $6.50 and $7 a share. Some fund managers ascribe the gap not exclusively, but substantially to a management discount.
There are concerns, too, despite the recent update, about Lion's ability to keep expanding the earnings of its beer business.
But, to put it simply, there's a view that Lion would enjoy a higher rating if another team were in charge.
Amiable and open are words frequently used in relation to Cairns. Then again, analysts who follow the stock have variously described the man as impulsive and inconsistent, and suggested Lion doesn't have a clear strategy.
They say the company has proved unable to quit its disastrous brewing business in China and it sold hotels in South Australia only to buy in Victoria.
In 1998 Cairns ruled out an interest in wine, only for Lion to turn around last year and buy premium wine makers Petaluma and Banksia for $370 million after first failing in a $800 million tilt at New Zealand's Montana. Arguably, Lion picked the top of the market to make its move, with wine assets at a peak when it bought.
It is true that times change, but analysts who declined to be named said the apparent swings in mood at Lion Nathan have unnerved investors who crave a more stable approach, outwardly at least.
Cairns has never shied away from admitting his mistakes. When taken to task by shareholders earlier this year over Lion's loss of market share in Western Australia to rival Foster's, Cairns was blunt. ``We screwed up. There's no point in dressing it up. They know we screwed up. We know it too. So why go through this torturous route where you try to pretend?"
For now, Cairns feels there is nothing he need own up to.
He argues that a small step into the higher growth wine industry was the prudent approach, to start modestly and ``crawl before we walk before we run". The focus is on the premium end of the market, whereas others have taken a broader approach.
Lion sees no value in owning a mainstream wine company selling plonk for less than $10 a bottle, particularly if you're only the fourth or fifth largest in the market. There could be a few small acquisitions at home, but the more substantial, albeit general, plan is for Lion to buy into overseas markets, such as the US, South America, and South Africa, once it has proved the blueprint works.
``Our strategy is so different to everyone else's and we don't want to end up with a $1 billion business and egg all over our face," Cairns says.
As for China, the brewing business there ``is in grave danger of making money", with a target to break even next year.
And buying hotels in Melbourne, he says, was the only way Lion could make sure of getting its biggest selling product Toohey's New into that market.
The idea is to gain one percentage point of market share a year.
A more charitable observer would claim that a snapshot of Lion taken now would catch the company in mid-stream as it sensibly adapts to changes in the market. So, Cairns, although he doesn't think about it in these terms, has about two years to prove he is right.
He won't get a second act, having assembled a cast of successors ready and eager to take over. Walter Bugno, beer group managing director, has serviced an apprenticeship, while in the last two months Lion has poached the highly regarded Andrew Reeves from Coca-Cola Amatil to run the domestic beer business and Peter Cowan from Southcorp to guide the emerging wine and spirits operation.
``We've got a very strong team and that's probably what I'm proudest of," Cairns says. ``What I'm looking to do is get people who are considerably better than me, so that when the board chooses my successor we actually step up a notch."
Suggest to him that he's inconsistent and he smiles. He says it's a legitimate point of view, but he doesn't necessarily agree.
``I wouldn't describe myself as inconsistent. I would describe myself as the very opposite."
Cairns has his supporters though. Many see him as the man who has done more than any other to bring rationality to the Australian beer market, which is essentially a duopoly comprised of Lion and Foster's.
After all, there hasn't been a really vicious price war for many years now, just mild skirmishing around the edges.
In the past two or three years, the higher returns from Lion's beer business suggest it has outperformed Ted Kunkel's mighty Foster's. And that's occurred without any great changes in market share between the rivals.
Instead, Lion has made headway through innovation and introducing new products such as Hahn Premium Light beer and other high-end drinks.
``He has made some questionable decisions at the margin and he speaks his mind and can say some ill-advised things," says one fund manager. ``But the performance of the beer business since he joined has been spectacular."
Whether the comments are good or bad, it's all the same to Cairns. ``People can think what they like and say what they want," he says. `` What we'll be remembered for is the results over the past five years."
Since he took the reins, company sales are up 9.7 per cent, net profits have nearly doubled, and shares have climbed 40 per cent.
If Lion Nathan hits a market forecast of $161 million net profit for 2001-02, the company, led by the Australian beer division, will have had compound annual after-tax profit growth since he joined of better than 10 per cent.
``There's not a lot of companies that can say that," Cairns says.
He won't divulge any plans he might have for life after Lion, but he says his wife, Jane, approves of the new life he has mapped out.
Looking back, Cairns, who never thought he'd get his own company to run, has worked with pet food, chocolate, potato chips, and fried chicken. He believes the beer and wine business is best, though. He says after a hard working week, nothing has quite the same ring as the phrase ``let's have a beer".
© 2002 Sydney Morning Herald
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