As forecast, Foster’s is backing its rejection of the $4.90 a share offer from SABMiller with a big share buyback and a solid final dividend of 13.25c.
That’s despite the brewing giant yesterday reporting a fall in beer sales and underlying profit for the year to June 30.
Net profit before one-off items fell to $494.9 million.
After a loss on the demerger of Foster’s wine business, Treasury Wine Estates, the brewer had a loss of $89 million.
Foster’s revealed plans to make a $500 million share buyback or capital reduction as a sweetener for shareholders to remain loyal.
But with beer volumes still weak, it is going to be a big ask for the company to keep the predator at bay.
Judging by comments from analysts and others, the moves are not all that convincing.
The 13.25c a share final dividend will cut the $4.90 price offer by that amount. That means that once the dividend payout happens, the actual price will fall to $4.7675 a share.
SABMiller took its offer direct to shareholders last week after Foster’s board again rejected the approach as significantly under-valuing the company.
Foster’s shares closed on Monday at the $4.90 offer price, indicating the market doesn’t see much pressure on SABMiller to raise its bid significantly.
The shares rose 9c or 1.8% to $4.99 yesterday, or 1.4%, in a market up 2.2% on the day, thanks to a strong afternoon session.
Total sales revenue fell by 5% to $2.274 billion, with its total beer sales revenue down 6% and beer volumes also down 6% in the 12 months to June.
The key Carlton and United Brewers (CUB) division experienced a 5.6% drop in beer volumes.
In the company’s second half, earnings before interest and tax fell 9% to $378.9 million from $416.5 million a year ago.
That trend wasn’t a shock, it has been apparent since late last year when the company updated the market on the performance of its beer business (that was ahead of the demerger).
The company forecast last November that the slump in beer demand would ease, and repeated that forecast yesterday.
"Foster’s expects that the rate of decline in the Australian beer category will moderate in the first half of fiscal 2012," the company said in yesterday’s ASX statement.
The company said the decline in beer volumes had slowed to 3% last month.
"The cider category is expected to remain in strong growth, and craft beer and international premium beer are likely to lead the beer category and continue positive mix trends," Foster’s directors said.
Economic uncertainty, lower household disposable income and exceptional (wet) weather conditions reduced consumer demand for beer, the company said.
The 13.25c a share final payout is unfranked.
With the interim of 12c a share, the total for the year is 25.25c.
Shareholders in Treasury Estates (those who held on after receiving their shares in May) received a 6c a share payment this week.
The dividend for the 2010 year was 9.8c, down because of the costs of restructuring and write-downs, mostly in the wine business, ahead of the demerger.
The $500 million of capital management follows success in the Ashwick tax case which produced a continuing operations material gain after tax of $551.6 million.
Mr Pollaers said that "a strong credit profile and proceeds from the Ashwick tax case have led the Board to pursue capital management options for the return of at least $500 million to shareholders.
“Options being investigated include a capital reduction and share buy back. A capital reduction involves seeking a tax ruling from the ATO, a process that commenced in July, as well as the approval of shareholders”, Mr Pollaers said in yesterday’s statement.
