Australia: Australian beer and wine giant, Foster’s Group Limited (FGL), announced on February 8 a 0.9% decline in net profit to A$757 million (US$580 million; €451 million) for the six months ended 31 December 2004, as sales dropped 10 %. Forster’s blamed a competitive pricing environment on its decline in net profit. The negative result occurred despite the company benefiting from A$461.7 million in significant items relating to divestment of the Lensworth Group and the disposal of its residual 10% investment in the Australian Leisure & Hospitality Group.

Sales fell to A$2.03 billion (US$1.55 billion; €1.21 billion) from A$2.26 billion (US$1.73 billion; €1.35 billion) due mainly to overseas price wars. Foster's owns brands including the well-known Shanghai Beer and Guangming beers in China. Its wine labels include Australia's Wolf Blass and Greg Norman Estates, and California's Beringer and Stags' Leap. It also has wine labels in Italy and New Zealand.

The result included a net one-time gain of A$461.7 million, mainly related to the A$454.2 million gain on the sale of Foster's Lensworth property business. Net profit in the previous first half was bolstered by a one-time gain of A$464.3 million, mainly relating to Foster's sale of its pubs and gaming business. Excluding one-time items, Foster's reported a net profit of A$295.3 million (US$226 million; €175.96 million) in the first half, down from A$299.8 million (US$230 million; €179.07 million) in the same period last year.

"Overall, I am very pleased with the group's financial performance for the first half of fiscal 2005 and remain confident that Foster's is well placed to deliver significantly enhanced financial returns for shareholders," Chief Executive Trevor O'Hoy said. "With the major operational reviews now behind us, Foster's is at the front end of a sustained period of strong organic growth," he said.

One of the few positives for the company was its EPS figure, which rose 5.3% to 37.8c per share due to a 6% reduction in share capital from Foster’s buy-back activity during the period. The group also increased its fully franked interim dividend by 5.7% to 9.25c per security. Of the better divisional operations, Foster’s highlighted Carlton & United Beverages’ growth in revenue, earnings and margins.

However, trading conditions in the key markets for Foster’s Brewing International operations were very competitive. The group said Foster’s Brewing International volumes declined 1.2%, primarily driven by aggressive competitor pricing activity in the UK off trade during the peak Christmas period.

The profit result comes hot on the heels’ of Foster’s A$4.17 per share, A$3.6 billion offer for local wine group Southcorp Limited (SRP). The takeover action was initiated last month after Foster’s purchased the Oatley family’s 18.8% stake in the wine maker. After an impromptu meeting, Southcorp promptly branded the opening bid "inadequate and opportunistic" and told shareholders to take no action.

Even without the blessings of the Southcorp board, Foster’s said it remained confident of success in its takeover offer for the recovering group, but was unsure of the timing and outcome of any deal. SHAW Stockbroking head of research Mr Scott Marshall commented that if the merger is successful, it would entail risks for Foster’s including managing the restructure of both companies at the same time as well as usual integration issues.

"The underlying profitability of Southcorp, excluding currency hedging benefits is unknown," Mr Marshall added. Looking ahead, Foster’s claimed it was at the front end of a sustained period of strong organic growth.

Directors said that the group is poised to deliver low double-digit normalised EPS growth for the continuing businesses in fiscal 2005. "Foster’s has undertaken a number of initiatives aimed at improving its cost base, notably the Wine Trade Operational Review, the CUB Operational Review and the Foster’s Services Review." "These initiatives help provide the underpinnings of sustained earnings growth," the group concluded.

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