Foster's Warns Investors Of A Wine-whine Situation
Sydney Morning Herald
Wednesday August 27, 2008
FOSTER'S GROUP has warned that its struggling wine business faces another year of financial turbulence and refused to rule out the possibility of further asset write-downs, after reporting an 88 per cent slump in full-year profit to $111.7 million.
It is two months since the Foster's chairman, David Crawford, conceded its multibillion-dollar foray into wine had been a costly mistake. Yesterday's profit result, as previously flagged, was marred by $730 million of pre-tax write-downs on the beverage company's US and Australian wine operations. "Our recent wine results have not been acceptable," Mr Crawford said, echoing his comments in June when he announced a review of the wine operations following the resignation of chief executive Trevor O'Hoy. The only bubbly news yesterday came from the beer business, which reported a 7.7 per cent rise in pre-tax profit to $793.8 million. "I don't think it would be a balanced picture if we did not highlight the successes over the past 12 months," Mr Crawford said. "We have a very successful beer business. We have a beer business that every brewer in the world would like to own." In comparison, wine reported a 16.4 per cent slump in pre-tax and one-off profits to $392.7 million, partly due to flagging US sales and the impact of the strong Australian dollar. But Foster's declined to provide any clear hints on whether it could spin off the wine operations following a strategic review. "We will look at all options at the time we've concluded the review," Mr Crawford said. Foster's hoped to appoint a new chief executive and complete the review by the end of this calendar year, he said. Foster's could hold off selling its wine assets and even look to build up the business via some acquisitions, the chairman said. This has spurred speculation of a move to demerge its beer and wine operations. Asked if the group could write down the value of its wine business further, the acting chief executive, Ian Johnston, said: "We certainly will not be expecting to have very significant [writedowns] like the ones this year." But he failed to rule any out. Foster's also failed to provide any profit targets for the coming year, highlighting the possible impact of rising costs, the currency and its wine review. "There are just too many uncertainties," Mr Johnston said. He hosed down talk he could assume the top role, noting he was not on the shortlist. The write-downs announced yesterday included $391.5 million of goodwill to the group's US and Australian wine business and $126.9 million of excess stock. The main blemish in the result was the US wine business, which suffered a 41.6 per cent slump in pre-tax profit to $146.6 million. Excluding the impact of the rising Australian dollar, US wine profits slumped 22 per cent. The group's shares rose 8c to $5.41, as analysts were heartened to see Foster's focus on earnings-per-share growth scuttled in favour of improvements across its business and market share.
© 2008 Sydney Morning Herald
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