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AUS: Wine sours Foster's Group full-year results

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  • Wine impairment charge drops firm into red
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  • Demerger on-track to complete in 2011

Foster's Group has swung to net losses for its fiscal full-year as charges on the falling value of its wine business overshadowed a rise in sales and profits for its Australian beer arm.

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Foster's said today (24 August) that an AUD1.27bn (US$1.13bn) impairment charge on the value of its wine assets caused the group to sink to losses of AUD464.4m for the 12 months to the end of June. The Wolf Blass and Rosemount wine producer reported profits of AUD382m in the previous year.

"The impairment charge to the carrying value of wine assets predominantly arises from a higher discount rate being applied to wine now that it is being managed as a separate business, and higher long-term exchange rate assumptions," said Foster's.

Unfavourable currency rates in many key markets exacerbated lower consumer demand for Foster's wines. The company reported wine sales down by 67% to AUD15m in the Europe, Middle East and Africa (EMEA) division and by 17% in Asia. Sales would have risen in the Americas but currency fluctuations caused a 33% drop, to AUD107.4m.

"Market conditions in the wine category remain mixed with oversupply in the Australian market, a subdued consumer environment in key international markets, and the strength of the Australian dollar expected to have an ongoing impact," said the firm.

Despite the market pressures, Foster's remained upbeat about the prospects of its global wine business, which has been newly-christened as Treasury Wine Estates, following 18 months of work to dispose of non-core brands and vineyards.

"Wine earnings were up strongly in the second half on improving sales focus and execution, and the realisation of benefits from efficiency programmes," said group CEO Ian Johnston. "On a constant currency basis, earnings rose 20.5% to AUD221.3m with growth in the second half of 136%. However, unfavourable exchange rate movements cut Treasury Wine Estates reported earnings by $123m."

Foster's net sales fell by nearly 5% for the full-year, to AUD4.3bn, but rose by 0.8% at constant currency. Sales were cushioned by the company's Australian beer arm, Carlton & United Breweries (CUB), which reported sales up by 5% to AUD904m for the 12 months.

"Despite a softer consumer environment in the second half of fiscal 2010, Foster’s remains confident that the long-term fundamentals of the Australian beer category remain robust, and that CUB’s programmes to improve sales and marketing execution, portfolio realignment initiatives, and increasing production efficiency and flexibility will drive future performance," said the group.

A solid performance from CUB helped Foster's Group to limit a decline in earnings before interest and tax to 5%, at AUD1.1bn. At constant currencies, EBIT rose by 6% on the previous year.

On the subject of Foster's impending demerger of its beer and wine businesses, the group said that it had not yet decided on the "optimal structure" of the separate divisions. The firm said it was on-track to complete the demerger in the first half of calendar 2011. It did not comment on speculation concerning a possible takeover of CUB.

For the full announcement, click here.


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