Quite a few companies reporting yesterday had already unloaded the bad news on the market: Fosters Group, Suncorp Metway, Mirvac and Toll were the notables.
All the pre-conditioning announcements and then yesterday’s final statements had one common theme these companies; some with aspirations to blue chip status, simply paid too much or had business models that were made redundant by the credit crunch.
Shareholders have paid in lower share prices, and in some cases, lower distributions this year or next for these gross failures of management.
They have managed to depart in some cases with a nice fat cheque (Mike Tilley from Challenger on Monday), leaving others to clean up the mess.
Take Fosters Group: it reported an 88% fall in annual profit and declined to provide guidance for the 2009 financial year while the company conducts the previously announced strategic review continues of its wine operations.
Fosters posted net profit for the 2008 financial year of $111.7 million, declared a final dividend of 14.25 cents a share, fully franked. That made a total for the year of 26.25 cents, compared to 23.8 cents in 2007.
Despite the mixed news, the market took a favourable view of the result and marked the shares up 8 cents on the day to $5.41.
In addition to the write downs and strategic review, Fosters lost CEO, Trevor O’Hoy after four years as he took the can for the wine strategy which will now be undone, if Fosters can find someone to pay the right price.
With international rival, Constellation of the US looking to unload around $200 million of Australian wine businesses (and sacking quite a few local staff) Fosters is going to find it tough to get buyers prepared to cough up a high enough price to make the write-downs look reasonable.
The net result was affected by two impairment charges of $437.7 million on the carrying values of wine in the Americas, and $292.7 million on its Australian Asia Pacific (AAP) wine carrying values.
Those write-downs signal what the company thinks the new carrying business for wine will be: that’s yet to be tested in the market and finding buyers will be made tougher by the credit crunch.
It’s no wonder Fosters acting chief executive officer Ian Johnston said the company would not provide guidance for the 2009 year while it conducted a strategic review of its wine operations.
"Global trading conditions for wine continue to be competitive but the category remains in solid growth," Mr Johnston said.
"We have not been immune from industry-wide pressures including an economic slowdown in key markets and higher grape prices.
"Foreign exchange movements in the 12 months to 30 June 2008 cut wine earnings by approximately $70 million and wine growth by 14.6 percentage points.
"Put simply, financial returns from wine have not met our expectations."
He said Fosters was responding to wine category trends with sales initiatives across key categories and markets.
"We are making good progress with our wine review but won’t be commenting on our analysis or conclusions until the review is completed."
Before the write-downs Fosters reported a 0.4% drop in net profit to $713.2 million, which is really down after inflation.
Earnings per share were up 3.4% to 36.8 cents, within the guidance range provided to the market on June 10 when the company bit the bullet, announced the CEO’s departure, the review and the asset write-downs.
"Cash flow and liquidity were very strong. Cash flow after dividends increased 52.1 per cent to $433.9 million. Cash conversion increased 0.3 percentage points to 93.2 per cent of (earnings before interest, tax, depreciation, amortisation, significant items and SGARA) with continued strong performance in both beer and wine.
"Constant currency net sales revenue decreased 0.1 per cent, earnings before interest, tax, significant items and SGARA (EBITS) increased 4.3 per cent and earnings per share increased 7.9 per cent."
Fosters said its beer business in Australia "remains robust and continues to generate solid earnings growth".
"Fosters continues to expect the review to be completed by the end of 2008.
"Our Australia, Asia and Pacific beer business continues to perform well with earnings up 8.0 per cent for the year.
"Pure Blonde is experiencing outstanding growth, accounting for around 40 per cent of total Australian beer market value growth.
"VB remains Australia’s favourite beer, with the healthy growth of VB Gold returning the brand to overall growth.
"We expect the beer market to remain resilient, with brand innovation driving value growth.
"Some very deliberate pricing decisions have slowed beer volume growth but strong value growth continues," Mr Johnston said.
But it’s the old story: after pumping $6.3 billion into wine in eight years, the company still depends on the boring, mature beer business based in Melbourne to provide the earnings strength of the group. It somehow sums up eight years of missed opportunities.
