Sobering drop in profit for big brewer

MELBOURNE - Foster's Group, Australia's largest brewer, said first-half net profit fell 13.5 per cent as it lost market share in beer and the strong Australian dollar hurt its struggling wine business.

Foster's, which makes Beringer, Penfolds and Lindemans wines, said for the six months to December 31, net profit before one-off items fell to A$355.7 million ($453 million) from A$411.3 million a year ago.

That was well below analysts' forecasts of A$391.4 million, according to the average of forecasts by five analysts polled by Reuters.

Foster's said Australian dollar strength cut A$83 million from its wine earnings in the six months to December 31, and the recession hurt demand.

Analysts said Foster's has also lost market share in its main beer business to rival Lion Nathan, as its Victoria Bitter brand declines in popularity.

Foster's shares have edged up 3.6 per cent over the past six months, just ahead of the broader market's rise of 2.3 per cent up to Friday's close.

Foster's chief executive Ian Johnston said the rising Australian dollar had cut the company's wine earnings by around A$83 million.

"Adjusting for currency, the key contributor to the decline in wine earnings was recessionary conditions in America," Johnston said.

"Wine consumers have reduced discretionary spending and global over-supply of wine is prompting clearance-level discounting."

Johnston said Foster's transformation programme, one year after a strategic review of its wine business, was beginning to pay off.

"In Australia, the changes we made to the sales team and the creation of end-to-end businesses in beer and wine are beginning to show benefits.

"Our wine performance has been good in a very tough domestic Australian market - with improved performance from our core labels such as Penfolds, Lindemans, Wolf Blass and Yellowglen.

"As we progress through the financial year, we will realise further benefits from the transformation of Foster's.

"I'm confident that over the coming 12 to 18 months, we will see the changes across our business translate into sustained performance improvement."

Foster's said it remained committed to its strategic agenda and transformation programme.

"The transition to new business structures and implementation of many of the key initiatives emerging from the wine review are substantially complete," the company said in a statement.

"The next phase of Foster's programme will be a drive to improve execution and effectiveness.

"Growth initiatives under way include further investments in sales capability to deliver our beer strategy and build on the strong growth and cash flows of Cub [Carlton and United Breweries].

"With a dedicated beer sales team now in place and new leadership appointed, Cub is well placed to become a more efficient, competitive and focused business."

In wine, Foster's said it was moving to "reinvigorate the Australian wine category overseas", and establish a strong regional presence in Asia, and extend "excellent" results in the Nordic countries across Europe.

"In the Americas, Foster's is progressing the US route to market strategy and will commence implementation of the first phase in June 2010," the company said.

"Prevailing economic conditions remain challenging in the Americas, however there are emerging signs of stabilisation. Recent performance improvement in key states provides confidence that momentum will build through the balance of the year."

Foster's said net sales revenue was down 4.4 per cent at A$2302.2 million for the first half of 2009/10.

Sales of Cub products were 6.6 per cent higher, but wine sales in the Americas had fallen by 62 per cent, and by 76.2 per cent in Europe, the Middle East and Africa.

Earnings before interest and tax (ebit) were 15.6 per cent lower at $570.1 million.

- AAP