Fosters to split wine and beer business

Foster’s Group has announced formal plans to pursue a demerger of its beer and wine divisions.

The news comes as the company predicted a non-cash, pre-tax impairment charge of up to AUD$1.3 million against its wine assets for the 2010 financial year.

A financial update released by Foster’s today anticipated the group as a whole would achieve earnings before tax and interest of AUD $1.05-1.08m. Fosters’ Wine Strategy Review carried out in 2009 suggested that a demerger could save the company at least AUD $100m per year.

Commenting on this latest update, Foster’s CEO Ian Johnston, said: “We are increasingly seeing the benefits of operationally separating the beer and wine businesses. While the beer and wine businesses are market leaders, they operate in separate market segments with different strategic and operating characteristics.”

As Foster’s’ beer business continues to pursue further growth through investment in its key brands, Johnston linked the woes affecting its wine arm to the wider problems facing the Australian wine industry.

He said: “Foster’s wine business is showing signs of growth but continues to be impacted by oversupply in Australia, subdued consumer demand in key international markets and a strong Australian dollar during the 2010 financial year.”

A demerger is likely to prove popular with investors by making it easier to value the Foster’s business and offering wider investment choice.

Additional potential benefits include the greater flexibility separate boards would enjoy to develop their own corporate strategies and financial policies appropriate to each side of the business.

The main problem associated with this step is the cost of financing the move, as well as additional corporate and one-off implementation costs.

The structure and timing of the demerger is yet to be decided, but will depend largely on the economic and capital market conditions over the coming months.

Foster’s has however suggested that the earliest possible date for this step would be the first half of 2011.

As the group pushes ahead with a full assessment of the impact and requirements involved, Johnston said: “We will proceed as quickly as possible, but priority will be given to ensuring that all relevant matters are carefully and rigorously examined with the intention of continuing to grow our businesses and minimising disruption to our customers, employees, suppliers and other stakeholders.”

Gabriel Savage, 26.05.2010