Australia: Foster’s Group posts yearly results

Foster's Group posted on August 30 its financial results for the business year . According to this report, earnings per share rose 21.2% to 46.8 cents per share, benefiting from higher profits after tax and lower share count in F05 as compared with F04. Weighted average shares on issue reduced by 3.5% as a result of capital management activities undertaken since early F04. Net profit after tax of $936.1 million increased 17.1% and includes significant items of $454.3 million after tax. On a normalised basis, (adjusting for significant items, SGARA, amortisation and discontinued businesses) earnings per share increased by 14.1% to 28.3 cents and net profit after tax increased 10.1% to $566.0 million (refer to calculation table on page 10).

Significant Items totalled $454.3 million after tax. This comprised net gains from the divestment of the Lensworth Group ($451.2 million), proceeds from the sale of Corporate Art ($8.3 million) and the disposal of the Group’s residual 10% investment in Australian Leisure and Hospitality (ALH) ($55.4 million). These gains were partly offset by total Significant Expenses of $60.6 million after tax comprising write-downs of $47.9 million as outlined at the interim results and an additional $8.1 million resulting from Wine Clubs and Services asset write downs, provisions and other costs and $4.6 million relating to Southcorp restructuring costs in the second half. Details are provided on pages 8 and 9.

Operating cash flow of $523.4 million was 20.3% lower than the prior year. Normalized operating cash flow for the continuing business of $633.5 million was up 21.3%. Normalized Operating Cash Flow Prior to Income Tax of $925.4 million represented 92.0% of EBITDAS, up from 90.6% in the prior year. The Directors have declared a final dividend of 10.75 cents per ordinary share fully franked, an increase of 2.4% on the F04 final dividend.

Southcorp Acquisition Update Foster’s successfully acquired Southcorp Limited during the period for gross consideration of $3.7 billion. At 30 June Foster’s had acquired more than 96% of Southcorp’s outstanding shares and had commenced compulsory acquisition of the remaining shares.

Permanent re-financing of the acquisition was completed in June 2005 using a combination of bank debt and bond issues.

Integration activities are progressing to plan with a detailed review of Southcorp’s business undertaken in each market and activities underway to successfully bring the BBWE and Southcorp wine businesses into a single organization. Foster’s has begun identifying duplicate assets in key wine producing regions which to date has resulted in the decision to dispose of several facilities as outlined in a separate disclosure to the ASX this morning.

Foster’s Brewing International (FBI)
FBI earnings growth was below expectations with EBITA increasing 1.8% to $44.4 million. Increased contribution from the New Zealand multi-beverage business, Asia operations and lower overheads offset reduced UK and US licence income and lower shipments to the Middle East.

Normalized operating cash flow prior to income tax of $44.6 million was up 16.4% on the prior year and represented 85% of EBITDAS. Global Foster’s brand volumes increased 2.3%, outperforming comparable brands. Foster’s maintained its position as the number 7 international premium lager beer brand.

Outlook
Forward guidance on the financial metrics associated with the acquisition of Southcorp was provided to the market in Foster’s announcements in January 2005. That guidance continues to be appropriate subject to the impacts of AIFRS as announced on 29 July 2005. Further to this, and prior to the impact of one time implementation costs, Foster’s now estimates Southcorp acquisition related cost synergies of $40-50 million will be realised in F06, building to $130-145 million by F08.

Foster’s confirms previous guidance that the Southcorp acquisition will be EPS neutral in F06, despite the loss of hedge book profits of approximately $30 million, and the additional acquisition cost associated with Foster’s increasing its offer for Southcorp to $4.26 per share.

The combination of these synergies, in addition to continued momentum in the CUB and Wine Trade businesses, flat to modest growth from the FBI and Clubs and Services businesses, Corporate expenses in the mid $50 million range, an interest rate just under 6% and a tax rate just higher than the Australian statutory rate, will position Foster’s to meet its ongoing normalised EPS growth target of 10% per year.

Comments
President and CEO, Trevor O’Hoy said: “After a year of transformation Foster’s Group sits at the doorstep of a period of sustained, strong earnings growth and today’s results start to show promise of what the Group can deliver into the future.”

“On a continuing business basis, normalised EPS increased 14.1% - achieving the Group’s 10% earnings growth target ahead of schedule. This result was driven by strong performances from the core CUB and Wine Trade operations and lower share count.”

“CUB delivered another excellent performance with EBITA growth of 11%. The breadth and depth of CUB’s customer network and distribution reach continues to facilitate strong volume growth across the multi-beverage portfolio and success in new product launches.”

“Foster’s Global Wine Trade business delivered a strong set of results despite a period of significant change. Key initiatives outlined as part of the Wine Trade Operational Review in June 2004 were successfully implemented over the period with significantly increased marketing spend stimulating above category volume growth in all key markets.”

“The successful $3.7 billion acquisition of Southcorp in May was transformational for Foster’s and provided the wine business with scale, portfolio strength and significant opportunities for revenue growth. I am impressed with the considerable progress that has been made in a short space of time, bringing the BBWE and Southcorp wine businesses into a single organisation.”

“It was also a year of progress at the Group level. Non-core asset disposals lead to Foster’s becoming a pure beverages business for the first time. The shift to a shared service philosophy delivered cost efficiencies and effectiveness improvements. Significant progress was also made integrating our businesses and sharing organisational capabilities and I am now confident that we are working as a team to deliver the results FGL is capable of.”

“Overall, I am extremely pleased with the Group’s financial performance for fiscal 05. Despite a period of significant change, business momentum has been maintained, and strong earnings growth achieved. I am confident that Foster’s Group is now well positioned to drive value creation for shareholders via further accelerating momentum in multi-beverages in Australia and improving the profitability in global win”

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