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The head of Foster's Group's Australian beer arm, Carlton & United Breweries, has said that tough conditions in the the country's beer market are set to continue.

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Australia has been heralded as one of the few devoloped beer markets that the global recession forgot about. But, it now seems that the economic malaise has caught up with the country.

Foster's Group said today (24 August) that its Australian beer sales fell by 2% in volume terms for the 12 months to the end of June, reflecting steeper decline in the second half of the year. Australia's beer market shrank by 1% in the six months to the end of June, compared to the same period of the previous year.

"We've seen a considerable slowdown in the beer category in the second half," said John Pollaers, managing director of Carlton & United Breweries (CUB), which leads the market by volume. Discount deals increased markedly in the sector in the fourth quarter and conditions are unlikely to ease off in the short-term.

"I expect market conditions will probably continue much along the same lines in first half of this year," he told analysts at Foster's full-year results conference call.

Pollaers' comments, together with news that CUB has continued to lose overall market share, will be of interest to brewers who might consider bidding for CUB once it has been fully demerged from Foster's' troubled wine division.

However, the company argued today that CUB is in better shape than the market figures suggest. The division increased net sales by 5% to AUD904m (US$807m) for the year. It also increased earnings before interest and tax by 5% at the same time as raising brand investment by 15% on the previous year, although this rose at a slower rate in the second half.

More recently-launched beer brands, such as Carlton Dry and Draught, Pure Blonde and craft beer Fat Yak have performed strongly, said Foster's. "I'm seeing great signs of CUB returning to its best," said Foster's CEO Ian Johnston.

Pollaers said that CUB has more work to do to align its beer portfolio with growing consumer demand for lighter styles, as well as craft and import beers. He said that CUB will also continue to cut costs from its business.

Several brewers, including SABMiller, Molson Coors and Japan's Asahi Breweries, are interested in CUB as a potential takeover target. Analysts have initially priced the beer business at more than US$10bn, although this is an early estimate.

Most analysts do not expect a move for CUB until Foster's has unwound it from the group's ailing wine business. Foster's did not comment today on market speculation, but it confirmed that a demerger of its wine and beer arms was on-track to be complete in the first half of calendar 2011.

Despite Australia's beer market slowdown, CUB has been a bright-spot for Foster's over the last year. Impairment charges on wine assets dragged the firm into the red for its fiscal year, it announced today.


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