Foster's has put a brave face on an ugly situation with its troubled wine business and may still be eyeing a sale.

CEO Ian Johnston said in Foster's' full-year results today that "wine returns are [still] not where we want them to be" and that 2010 looks as tough as 2009.

Despite this, the group relayed reasons to be cheerful. It has launched several new products, including the sparkling wine Rosemount O, the wine business remains profitable and is being reshaped under new leadership in key regional markets, while an oversupply of wine, which reached its height in June 2008, has been reduced.

This is all well and good, but there remain strong suspicions that Foster's is still eyeing a time when the wine division can be sold off.

Foster's has "structurally separated" its wine arm from its higher performing Australian beer, cider and spirits business. Yes, the firm has been proactive in attempting to transform wine operations, but to what end?

Johnston said today: "Our expanded and dedicated wine sales force and, in particular our on-premise team in each state, are showcasing our extraordinary portfolio of wines in way we simply couldn't do under a combined sales structure."

To who are they being showcased - consumers or potential buyers? The answer is probably both.

Foster's, which saw full-year sales rise due to a strong performance in beer, was effectively forced to hang on to its struggling wine arm earlier this year after the global economic downturn sucked the credit and capital from potential buyers.

Foster's chairman David Crawford put it as well as anyone: "The current difficult conditions in debt and equity markets mean this is not the appropriate time to sell or demerge Foster's wine business."  

Foster's had no choice but to have a stab at rebuilding the business, which houses big brands like Rosemount and Wolf Blass alongside a long tail of smaller, lesser known entities.

Progress on disposing of this long tail suggests demand for Australian wine assets remains lukewarm, at best. Of 37 brands indentified for possible sale, Foster's said today that it intends to dispose of 17 by the end of 2009. It has so far only managed one sale, with another 6 in progress.

A glut of low-end wine in Australia, partly caused by falling demand in key export markets like the UK and US, has not endeared assets to potential buyers, many of whom are already strapped for cash.

"There has not been much sales activity" said Tim Altschwager, senior sales executive at Colliers International, which is handling the international marketing of Foster's assets. Altschwager told just-drinks recently that assets' sale prices were likely to fall.

At the same time, there is renewed optimism among some analysts that capital markets are recovering. One sign noted in Asia was that private equity group KKR managed to secure a bank loan in the region of $800-900m in order to help it buy Anheuser-Busch InBev's Oriental Brewery in South Korea.

For now, Foster's has no choice but to buckle down and get on with the job. But, it seems unlikely that thoughts of full-scale sell-off have been extinguished.