FOSTER'S Group Ltd, Australia's biggest beer and wine maker, has posted its first loss in 16 years after writing down the value of its global wine business by A$602.9 million (US$517 million).
The world's second-largest wine maker turned to a net loss of A$286.9 million in the first half from a profit of A$412.7 million a year earlier. Excluding items, Melbourne-based Foster's had annual net income of A$713 million, within its forecast.
Foster's is reviewing the wine unit and may exit a business that cost A$6.8 billion and 10 years to create as earnings slumped on increased competition and an Australian dollar that reached a 25-year high. Ian Johnston stepped into the acting chief executive officer role last month to stem market-share losses after the departure of Trevor O'Hoy, who doubled the brewer's wine assets in his four years in charge.
"The relatively clean result was ahead of our expectations and at the top end of the guidance range of A$700 million to A$715 million," Andy Bowley, a Citigroup Inc analyst in Sydney, said in a note to clients yesterday, obtained by Bloomberg News.
Foster's shares rose 8 cents, or 1.5 percent, to A$5.41 at the 4:10pm market close in Sydney yesterday, paring this year's decline to 17 percent. The stock has posted two annual gains since 2001.
Earnings-per-share growth before items and currency gains rose 7.9 percent, compared with the forecast 5-percent to 7-percent growth range given June 10, the day O'Hoy resigned.
The company didn't provide a forecast for future earnings, however.
Foster's is the world's biggest wine maker after Fairport, New York-based Constellation Brands Inc, which announced writedowns to Australian assets worth US$95 million this month.
Global wine earnings before interest, tax and charges for the half dropped 32 percent to A$168.7 million. The rise in the Australian dollar cut about A$70 million from earnings, with profit down 1.8 percent in constant currency terms.
Wine volumes, which includes sales of brands such as Rosemount, Beringer and Lindemans, dropped 5.7 percent to 38.7 million cases on lower demand for Australian wine in the United States and reduced domestic sales of cask, or bag-in-a-box, wine.
Good progress
"Put simply, financial returns from wine have not met our expectations," Johnston said in the statement. "We are making good progress with our wine review but won't be commenting on our analysis or conclusions until the review is completed."
The wine unit may be worth about A$3.8 billion, according to analysts at Credit Suisse Group, or about 44 percent less than the company spent creating it.
Chairman David Crawford, who is overseeing the review, said he will consider "all alternatives" for wine, which may include keeping the business as it is, adding or selling parts of it, or spinning off the business to shareholders.
Second-half beer, cider and spirits earnings in Australia and the Asia-Pacific region rose 6.4 percent to A$346.8 million in the second half, helped by new products, while wine earnings fell 6.8 percent to A$86.1 million.
During the period, Foster's started selling Cascade Green, which it said is the world's first carbon-offset beer.