In mid-December Fosters Group issued a trading update that warned of the impact of the strong Australian dollar on wine revenues from offshore and the tough trading conditions in some parts of the division here and in foreign markets.
The company said the CUB beer division "continues to perform in line with Foster’s expectations".
In yesterday’s interim profit announcement the hit to wine was revealed.
And while the company portrayed the results from beer as good, with earnings up 6.6% for CUB, that came from cost cutting as much as anything.
CUB’s beer volume in Australia fell 1.1% even as industry volume rose 1% as consumers moved to premium, imported and low-carb beers.
Global beer volumes fell around 1.8% in the half year.
The troubled and restructured wine business, which had been 40% of earnings three years ago, saw a 24.8% fall in earnings in the half, thanks to very tough trading conditions in the US, Asia and New Zealand.
Fosters has lots of beer brands in its portfolio, but the company has stayed away from the heavy discounting by retailers such as Coles and Woolworths.
Earnings at the net level finished the first half down 13% and the shares ended the day off 2.1%, or 12c, at $5.44.
Up till yesterday the shares had risen 3.6% over the last six months.
It was in fact the lowest first-half profit in four years.
Foster’s, which makes Beringer, Penfolds and Lindemans wines, as well as VB, Carlton Draught and a range of other beers, said December half net profit before one-off items fell to $355.7 million from $411.3 million a year ago.
That was well below analysts’ forecasts of around $391 million.
Foster’s said the Australian dollar strength cut $83 million from its wine earnings in the six months to December 31, and the recession hurt demand here and offshore, as the company had warned in December..
Foster’s has also lost market share in its main beer business to rival Lion Nathan, as its Victoria Bitter brand declined in popularity.
But Fosters said that its Australian and Pacific beer business, Carlton & United Breweries (CUB), had a strong first half with EBIT up 6.6% to $486.4 million. CUB earnings benefited from strong unit revenue growth that included a contribution from both price and mix. (No mention of volume.)
"In Australia the Carlton brand continued to outperform the beer category with net sales revenue up 12.0%.
"The VB brand maintained the momentum established in the second half of fiscal 2009 with net sales revenue ahead of the prior year."
(No mention of volume here and analysts say the brand has lost share to Lion Nathan brands.)
"Pure Blonde continues to be the leader in the low carbohydrate sub-segment with growth benefiting from the launch of Pure Blonde Naked Ale," directors of Fosters said in their statement.
"Corona led growth in the premium international category and Crown Lager’s volume and net sales revenue were similar with the prior year."
Foster’s said interim revenue fell 4.7% to $2.4 billion, while an unchanged interim dividend of 12c a share was declared.
Earnings before interest and tax (EBIT) were 15.6% lower at $570.1 million.
‘‘We maintained strong cash performance with cash flow after dividends up 20.1 per cent to $187.3 million and group cash conversion increasing 14.8 per cent to 107.3 per cent," the company said in yesterday’s statement.
‘‘Foster’s balance sheet remains strong with net debt at $2.2 billion, interest cover of 8.9 times and committed un-drawn facilities of $1.8 billion."
Foster’s said it remained committed to its strategic agenda and transformation program.
"The transition to new business structures and implementation of many of the key initiatives emerging from the wine review are substantially complete," the company said in a statement.
"The next phase of Foster’s program will drive improving execution and effectiveness.
"Growth initiatives now underway include further investments in sales capability to deliver our beer strategy and build on the strong growth and cash flows of CUB.
"With a dedicated beer sales team now in place and new leadership appointed, CUB is well placed to become a more efficient, competitive and focused business."
There was no mention of any trading or earnings guidance in the outlook commentary whatsoever.
All the comment was like the above, about how the transformation program would produce benefits.
In wine, Foster’s said it was moving to "re-invigorate the Australian wine category overseas", and establish a strong regional presence in Asia, and extend "excellent" results in the Nordic countries across Europe.
"In the Americas, Foster’s is progressing the US route to market strategy and will commence implementation of the first phase in June 2010," the company said.
"Prevailing economic conditions remain challenging in the Americas, however there are emerging signs of stabilisation.
"Recent performance improvement in key states provides confidence that momentum will build through the balance of the year."
Wine sales in the Americas had fallen by 62%, and by 76.2% in Europe, the Middle East and Africa.
