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Foster’s Comes Good
August 29 2007 - Australasian Investment Review – (AIR)

Australia’s biggest alcohol group, Foster’s Group Ltd, will undertake a $350 million buyback program after revealing a strong rise in profits in the year to June 30.

The buyback will be the second in as many years after the company conducted a $400 million program last year.

In addition, the final dividend is up 10.6% to 13.5c a share.

The company said that $250 million of the buyback will be off market and the remainder on market, which will help support the share price.

Foster’s said net profit for the year to June 30 was $716 million, compared to $613 million a year earlier, and compared to consensus estimates of around $696 million.

The sharp rise in earnings was on the back of a 22% rise in second-half profits, with Australian beer and wine volumes and profits recovering from the poor first-half when distribution problems caused shortfalls.

The news of the buyback and the sharp improvement in earnings saw Foster’s shares jump by more than 6% to a high of $6.39 before settling back to close up 32c at $6.32, the biggest daily rise in a year.

It was a year ago when the company’s shares took off on unsourced speculation that it was going to face possible bids from major overseas players: that later became bids from major private equity groups.

Neither eventuated and the share price has slumped in the past couple of months as brokers and shareholders wondered if the company would recover from the distribution problems and from the sharp rise in the value of the Australian dollar.

The company’s CEO, Trevor O’Hoy, indicated that there had been plenty of interest from private equity, but nothing certain ever eventuated and the calls stopped around six weeks ago when the credit crunch started hitting overseas.

Around 33% of the company’s sales and earnings come from overseas, with 25% from the US alone. Wine now accounts for 40% of total earnings

Foster’s also forecast strong earnings growth this year as it focuses on premium beer and wine sales.

“Foster’s expects global volumes in fiscal 2008 to be similar to fiscal 2007 as portfolio focus shifts to growth in higher margin products, with planned reductions in cask wine volumes,” the company said in its statement to the ASX.
Foster’s said the result was driven by the growth of international wine sales, and locally by rising sales of its new low-carbohydrate Pure Blonde label.

Foster’s ruled out acquisitions for the next one to two years and says it will focus on organic growth for the next one to two years.

Foster’s forecasts revenue growth in the Australian beer category to remain “robust” and the premium wine category in its key markets continues to display “attractive growth characteristics.”

Foster’s expects global volumes in fiscal 2008 to be similar to fiscal 2007 as portfolio focus shifts to growth in higher margin products, with planned reductions in cask wine volumes.

Mr O’Hoy said the group had delivered accelerating earnings per share growth and its third consecutive year of double digit growth in today’s results.

“Revenues grew 4.7% to $4.5 billion, or almost 6 per cent at constant exchange rates,” he said.

“Revenue growth accelerated strongly in the second half, up 8.6% at constant exchange rates.

“Growth of international wine was a highlight and reinforces our strategy to become a major global premium wine player.”

Net sales revenue in Australia, Asia and Pacific increased 3.9%, or 4% at constant currency terms, to $2.88 billion.

Constant currency net sales revenue in the Americas increased 7.5% to $1.22 billion.

In Europe, the Middle East and Africa (EMEA) net sales revenue increased 15.2% to $454.4 million.

Foster’s told the ASX that “in the Americas, Foster’s expects its premium wine category to remain strong, with further investments in its route to market capability and new product development driving revenue growth.

“In the emerging markets region, Foster’s expects to consolidate the recovery in performance experienced in fiscal 2007 with continued momentum from new product development and increasing focus on higher price points driving Foster’s revenue growth ahead of the wine category.”

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