Foster's Group shareholders are a stoic lot.
The company's shares have just plain under-performed for most of the year because of fears about the impact of the drought on its wine business and the strong Australian dollar on its US and British wine earnings.
Then analysts at Merrill Lynch issued a toughly-worded report earlier this week, saying the company's merger with Southcorp has destroyed $2.5 billion in shareholder value and the company should be split or face the possibility of a drop in earnings and share price next year.
Then the thrust of the analysts warning and those concerns about the impact of the dollar and the drought were confirmed at the AGM, held in Adelaide (not Melbourne) yesterday and what did the market do?
Bid the shares up 5c to $6.37. It was a small gain for the optimists who still seem to believe the story from the board and management.
That's despite the very strong suggestions Foster's first half earnings could be hammered by around $40 million (depending on the US /Australian dollar rate, and the value of the British pound).
Figures were given showing the sensitivity of profits to currency changes, but management and the board didn't do the sums in their speeches to the meeting.
The world's second-largest winemaker did however say that it expects the rising Australian dollar will have a "significant'' impact on earnings.
Like so many other Australian companies with international businesses, the company is battling a currency that hit 92 USc this week, plus the added and unwelcome distraction of a drought that threatens the 2008 vintage as well.
That drought is tightening the grape supply situation in Australia, and Foster's may look overseas to fill any shortfall, but it will also mean higher prices for the company's brands next year, and the ending of much of its low margin wine cask business. (Chateau Chardonnay)
Foster's CEO, Trevor O'Hoy, said the higher value of the Australian dollar against the United States dollar and the British pound was having a negative impact on its earnings, particularly for wine.
"While our US dollar-denominated debt provides a partial hedge against the Australian dollar's strength, overall, currency is likely to be a significant net negative impact on our 2008 earnings growth and return on investment in wine," Mr O'Hoy said.
Mr O'Hoy said that for every one-cent increase in the Australian/US dollar exchange rate, Foster's pre-tax profit was reduced by about $4.5 million.
For a one-pence increase in the Australian dollar against the UK pound, pre-tax profit was reduced by around $8.5 million.
In the September quarter, the average Australian-US dollar exchange rate was up around 6 cents compared to the average rate for fiscal 2007, and the average Australian dollar-UK pound rate up around 1.3 pence.
On that basis, the hit to earnings is around $38 to $40 million, but the dollar has appreciated further since the end of September.
But ever the optimist, Mr O'Hoy said the company believed it could continue the strong "constant currency" performance seen in the second half of the 2007 financial year.
Foster's chairman, Frank Swan, said the board had no intention at present to separate Foster's beer and wine assets, which had been urged on the company by some shareholders and in the Merrill Lynch report this week.
"Let me say that the board and the management team clearly keep all of these options and issues under review, but we have no intention at the present time of moving to separate the two businesses," Mr Swan said.
"And neither do we believe that it's in the best interests of the shareholders that we should do so."
Mr O'Hoy said the continuing drought in Australia could result in a smaller grape harvest in 2008, after dry conditions and frost reduced the 2007 vintage.
"We are looking at a number of initiatives to fill emerging supply gaps in the Australian market," Mr O'Hoy said.
"These include the possible sourcing of wine from international markets where we see domestic shortfalls."
Californian yields were expected to be below last year and there would be further tightening in overall supply.
"However, in the current half, we expect constant currency earnings and margins to be below the prior period as a result of product mix and a higher-cost 2006 Californian vintage," Mr O'Hoy said.
"We continue to expect strong second half and solid full year constant currency earnings growth in the Americas.
"Price increases will contribute to strong top-line growth and improving margins in the second half and for the full year."
In Foster's Europe, Middle East and Africa division, Australian wine continued to grow ahead of the total wine category in the United Kingdom and was improving performance in key continental European markets.
"We expect a solid first half constant currency performance in this region," Mr O'Hoy said.
"The strong Australian dollar continues to negatively impact earnings – particularly in wine."
That remains the bottom line for Fosters, and for a growing number of local companies with expanding international operations.
"While our US dollar denominated debt provides a partial hedge against the Australian dollar's strength, overall, currency is likely to be a significant net negative impact on our 2008 earnings growth and return on investment in wine," Mr O'Hoy warned.
Australian bank investors are fickle creatures.
Last week a dose of unchanged market guidance on a rise in loan loss provisions in the second half saw the ANZ sold off on Thursday in the wake of its record 2007 result and the news of
