The Australian drinks company Foster's said today that it will write down the value of it wine business by between A$270m and A$300m, which will be included in the 2004 full year results.

The write down is part of a comprehensive review of its global wine trade business, which was initiated in January 2004 in response to the weakening  performance in the face of the tough economic outlook.

The review, Foster's said, is expected to generate gross efficiency gains of A$60m per annum by 2007 increasing to about A$85m per annum by 2009. Approximately half of these efficiency gains are expected be re-invested into brand building and innovation.

In addition to the write down, Foster's also said it would be substantially increasing investment in brands and marketing, new product development and innovation across all key markets to improve BBWE's revenue and earnings performance.

The company will also take steps to better align current and future supply with expected demand in North America, including more extensive application of the outsourcing model.

Foster's said it would be making changes to the organisational capability of the group including the creation of a global supply chain function and the integration of systems and processes in demand forecasting and procurement activities across the group.

Finally there will be a range of initiatives to reduce costs, capture operational efficiencies and enhance the flexibility and capital efficiency of BBWE's supply and production base.

Foster's said that the changes were aimed at delivering above category volume and revenue growth and sustained low double-digit EBITAS growth rates from financial year 2006, after a year of consolidation in 2005 associated with brand investment and, therefore, more modest growth.
 
It said it was seeking EBITAS margins for the total wine trade business in excess of 20% in 2005 and increasing to mid-20s by 2009.

It also wanted to see return on capital employed (ROCE) for the total BBWE business showing a significant improvement, with low double-digit returns expected towards the end of the period 2005 to 2009.

Infrastructure consolidation activities in North America and Asia Pacific will result in at least a 40% reduction in planned capital investment, compared with that announced at the full year (of approximately A$150m), Foster's said.

Foster's President and CEO, Trevor O'Hoy, said:  "BBWE is among the world's leading global wine companies and already enjoys some significant competitive advantages, namely a portfolio of strong wine brands and one of the most impressive premium footprints of any major wine company.

"The implementation of the Review's recommendations will build on BBWE's strengths and position the business strongly for the future.

"By establishing a business model that is more flexible and responsive to consumer trends, BBWE will be better able to meet supply and demand requirements through market cycles.

"A renewed focus on brand investment, new product development and innovation will further underpin BBWE's ability to produce exceptional quality wine at all price points."

The company said that several key management changes will also take effect over the next six months. Walt Klenz will retire at the end of December but has agreed to continue as a senior adviser to the Board and management after that date.

Jamie Odell will take over as managing director, BBWE with effect from 1 January 2005, and will be responsible for implementing the Review's recommended initiatives, reporting directly to O'Hoy.