Olly Wehring

Wine and economics tough mix for Foster's

By: Olly Wehring - 15 February 2006 12:15

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It was a confident Trevor O’Hoy who presented Foster’s first half performance to the market yesterday (14 February), and not without good reason. The company reported a 10.5% leap in normalised net profit and perhaps, more importantly, the smooth progress of its integration of Southcorp.

“This is an excellent result in a period of substantial change,” O’Hoy claimed.

Foster’s added that it also remained confident of meeting its financial targets and realising significant further synergies following the Southcorp deal.

And, importantly in such difficult times, all the company’s global wine brands, with the exception of Rosemount, achieved growth. Wolf Blass and Beringer continued to grow volume and revenue, whilst Penfolds and Lindemans stabilised.

But the problems with Rosemount, which suffered a 20% downturn, encapsulate the fears the general market has for the sector. With an already troubling wine surplus and continuing pressure on margins from the global retailers, Australia has turned in a record harvest.

Indeed, despite Foster’s positive results, the market responded by slashing 3% off the world’s second largest winemaker’s share price.

“We are as well placed as any wine company in the world to deal with the surpluses,” chief executive Trevor O'Hoy told Dow Jones Newswires today, however. “It will make it a tough market, but everyone will face it and we'll face it from a better position because we've got greater efficiencies.”

Granted, this is very much a transition period for Foster’s. “In six short months, we’ve taken on the Southcorp integration, continued to develop our unique multi beverage business in Australia and established the world’s leading premium wine portfolio,” O’Hoy said.

That may be true, but Foster’s share performance demonstrates the problems of trying to make money in an industry dictated to by the forces of nature. No amount of restructuring from Foster’s can overcome this problem, or allay the fears of nervous investors.

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