Wine worries dilute profit report

MELBOURNE - Australia's biggest alcoholic drinks company, Foster's Group, posted a 10.5 per cent rise in first-half profit thanks to strong domestic beer sales and cost savings from its Southcorp wine acquisition.

But it warned of intense competition, especially in wine sales in Britain and Australia, where producers are battling an oversupply caused by recent record grape harvests, and its shares fell over 2 per cent, or 12Ac, to A$5.48 even though it maintained its full-year forecasts.

Investors were worried by weakness in the Rosemount brand, acquired last year when Foster's paid A$3.2 billion ($3.5 billion) for Australia's Southcorp, becoming the world's second-largest wine company after US-based Constellation Brands.

"The Australian wine industry remains a problem spot for Foster's and that won't be resolved for a little while yet," said Shaw Stockbroking analyst Scott Marshall.

Southcorp added the Penfolds, Rosemount Estate and Lindemans brands to Foster's existing wine range, led by Beringer and Wolf Blass. The company's beers include its flagship Foster's lager, Victoria Bitter, Carlton Draught and Cascade Premium.

The company's net profit for the six months to December 31 was A$333.3 million, up from A$307.1 million, excluding discontinued businesses, significant items, amortisation and an accounting charge.

The headline result fell 62.4 per cent to A$291.1 million, including A$37.9 million of one-off costs, down from A$773.5 million a year before when earnings were boosted by the sale of its Lensworth property division.

Foster's said its domestic beer and other beverage division, the cashflow engine room for the company, posted an 18 per cent rise in earnings to A$371.6 million as consumers turned to higher-priced premium beers that deliver stronger profits.

Earnings from the company's international beer division fell 11 per cent to A$20.2 million.

Wine trade earnings increased 59 per cent to A$204.4 million, as volumes and revenue grew in the Americas, Europe and Asia, offset by softness in Australia, Britain and New Zealand.

Foster's said that on a proforma basis, adjusting for the Southcorp acquisition and on constant exchange rates, global wine volumes increased 2 per cent and revenue declined 0.2 per cent.

Rosemount volumes declined by more than 20 per cent, but the Lindemans and Penfolds brands were stabilising.

- REUTERS