Foster's Group loses taste for wine after profits droop 12pc

Foster's first-half sales fell 6.7 per cent. Photo / Bloomberg News

Foster's Group, Australia's biggest brewer, will spin off the world's second-largest wine business as it focuses on reviving beer earnings after first-half profit fell 12 per cent.

Shareholders will vote on the split in April to receive one share in the new Treasury Wine Estates for every three Foster's shares they currently own, with completion expected by May, the Melbourne-based company said in a statement yesterday.

Net income decreased to A$312.1 million ($414 million) in the six months ended December 31 from A$355.7 million a year earlier, the Melbourne-based company said.

Foster's is giving up on wine after a decade-long expansion marred by more than A$2.5 billion of writedowns as competition, a glut of grapes and a stronger Australian dollar hurt profitability.

John Pollaers will become chief executive officer of the beer unit and David Dearie will lead Treasury after running its Australian operations. Current chief executive officer Ian Johnston will leave the company.

"The split is the easiest way of making sure that each side is focused on their own business," said Theo Maas, who helps manage about $5 billion at Arnhem Investment Management in Sydney. "We are looking at a complete new team on both sides of the business to take this forward."

Foster's, the brewer of Victoria Bitter and Foster's Lager, lost 1.6 per cent to A$5.65 at 10:06am local time in Sydney trading yesterday, erasing its gains for the year.

First-half sales fell 6.7 per cent to A$2.2 billion. The company was expected to post first-half net income of A$353 million, according to the median estimate in a Bloomberg survey of six analysts. Sales were projected at A$2.2 billion, based on three estimates.

Carlton & United Breweries, the domestic beer unit, posted a 6.8 per cent decline in earnings before interest and taxes to A$453.1 million after cooler weather damped demand.

Carlton & United's profit margin, which measures earnings as a proportion of sales, narrowed to 37.8 per cent from 38.5 per cent a year earlier, the first fall in profitability since 2001.

Pollaers, who has run the beer unit since April, has accelerated the rollout of new brews such as Fat Yak to offset declining sales of Victoria Bitter, the nation's top-selling beer, with a goal of stabilising Foster's share of Australian sales at about 50 per cent.

The company is battling smaller rivals such as Lion Nathan, a unit of Tokyo-based Kirin Holdings and Australia's second-largest brewer, as well as a shift in consumer tastes to sweeter, pre-mixed drinks.

Wine profit from sales in Australia and New Zealand rose 7 per cent to A$39.6 million. Profit from wine in North America and South America gained 24 per cent to A$54.2 million while in Europe, the Middle East and Africa wine turned to a loss of A$500,000 from profit of A$12 million a year earlier.

Currency movements cut A$19 million off wine earnings. The Australian dollar has advanced 13 per cent against the US currency in the past year, the best performer among 16 major currencies tracked by Bloomberg.

Dearie aims to cut A$100 million of annual costs from Foster's Treasury Wine Estates unit by the end of June by reducing expenses for packaging, warehousing and bottling. He's also targeting shorter production runs for brands such as Wolf Blass to enable it to trim inventory costs.

- BLOOMBERG