Foster’s has said that it intends to keep its struggling wine business, but will separate its wine and beer divisions and dispose of more than 30 “non-core” vineyards, as well as 37 brands.
Foster’s said today (17 February) that it planned to sell off 36 non-core vineyards and close, reconfigure or consolidate three wineries in Australia and California, following an eight-month review of its wine operations.
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The Australian group said that, contrary to reports last year, it has decided to “retain and reshape” its wine business, rather than pursue an immediate sale.
The firm, which today also reported a 3% rise in net profit for the six months ended 31 December, said that it would “structurally separate” its wine division from beer, cider and spirits.
It predicted that the plan, which will also involve the disposal of 37 peripheral Australian wine brands, would produce pre-tax cost savings of A$100m (US$65m) annually by 2011. The move suggests that top brands, such as Penfolds, Lindemans and Rosemount, will be kept.
Foster’s announced a strategic review of its wine business last summer, after a US$730m write-down charge for the business in the 12 months to the end of June caused an 88% plunge in the firm’s full-year profit.
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By GlobalDataSeveral analysts have recently predicted that Foster’s would opt to hold on to its wine business, at least for time being, because a poor financial climate has reduced the chance of a lucrative sale. A number of industry sources have told just-drinks that Foster’s sought potential suitors for its wine division last year, but met a muted response.
Foster’s chairman David Crawford said today: “In light of the operational opportunities available to improve performance, the board has determined that shareholder value will be maximised by retaining the wine business. The current difficult conditions in debt and equity markets mean this is not the appropriate time to sell or demerge Foster’s wine business.
The group said that it expected to report write-down and restructuring charges of between A$330m and $415m in its fiscal second half. It also said that approximately $60m of annual overheads will be transferred to the wine business from beer, cider and spirits.
Foster’s CEO Ian Johnston said that the wine review had identified “poor execution and an ineffective organisational structure and culture”.
The group reported a 3.4% drop in global wine sales by volume for the six months ended 31 December, with value sales down 3.5% in the key Americas market. Johnston said that group has retained market share in the US, however.
New managing directors, yet to be appointed, will lead Foster’s wine operations in Australia and the Americas, the group said, although Peter Jackson will remain in his position as managing director of Foster’s EMEA. Scott Weiss, who has led the Americas wine business since Foster’s bought Southcorp in 2005, will leave the group.
Meanwhile, Alex Stevens will leave his post as CEO of PepsiCo Australia and New Zealand to become Foster’s MD of beer, cider and spirits.
The firm said that it will also increase its beer, cider and spirits sales force in Australia by 25% as part of the restructuring plan, which it plans to have complete by 30 September this year.
Foster’s today reported a 2.2% net sales rise for the six months ended 31 December, to A$2.4bn, boosted by favourable currency rates. Net profit rose by 3% to $411m.
Net beer sales by value in Australia rose by 6% during the half-year period, Foster’s said.
