Foster’s divorce is on its way with shareholders to vote on the separation of beer and wine in late April.
If approved the separation will occur in May.
The move and timing were confirmed by Foster’s CEO Ian Johnston and chairman David Crawford in yesterday’s profit statement and a separate announcement.
The announcement – and somewhat guarded remarks about better times ahead – seemed to underpin Foster’s share price yesterday, which closed unchanged at $5.74 as investors extended the company a bit more time after a lower than expected net half year profit of $312 million.
That was off 12% from the same period of 2009-10.
While Foster’s has warned now for the past three months that a poor result in beer from falling sales, and the impact of the strong Australian dollar in wine, would combine to crush the interim profit (and probably the full year result), the outcome disappointed some investors.
The beer market in Australia fell 7% in the half year, helped by a cool spring and summer (and the floods as well), but also consumer caution.
Current-half beer volumes are expected to retreat by a further 3%-4%, a slowing on the first half, but with the weather again playing a big part.
"(Foster’s) currently expects beer market volume in the half year to June 2011 to be between three and four per cent below the prior year,’’ the company said in the earnings statement.
Foster’s managed to confine its local beer net sales revenue decline to 5.4%, with a small rise in net revenue per case being achieved. (Lower sales, but slight increase in what the company received net of costs.)
That improvement was a small boast and nowhere near enough to staunch the slump in earnings from the beer business.
Revenue still fell, down 6.7% to $2.238 billion.
Under the demerger, Foster’s will receive one share in Treasury Wine Estates (the wine arm) for every three Foster’s shares they own.
"The board believes the demerger will lead to improved long-term business performance,” Johnston said.
And Crawford said, "‘Fosters has completed a detailed evaluation of the issues, costs and benefits of the demerger, and the board unanimously considers that the demerger represents the best path forward and is in the best interests of Foster’s shareholders".
The de-merger idea will cost $151 million before tax in one-off expenses.
Foster’s will pay not less than 80% of its net profit out, consistent with its position as a cash generator, while Treasury Wine Estates will pay out between 55% and 70% of earnings as it retains earnings to reinvest.
Foster’s said that Treasury Wine Estates will be supported by a new $500 million syndicated loan facility.
Upon demerger, Treasury Wine Estates will have net debt of about $140 million, comprising $200 million of gross debt and cash of about $60 million.
Had the demerger been effected on December 31, 2010, Foster’s (post-demerger) would have had gross borrowings of $1955 million and cash of $71 million.
Foster’s says the dividends combined will be equivalent to what Foster’s would have paid as one company.
In the case of the December 31 half year that was a steady 12c a share.
