Australia: Foster's remain confident about meeting FY earnings targets

Global beverages producer Foster's Group Ltd does not expect the drought in Australia to affect its ability to deliver double-digit earnings per share growth, The Age published October 23.

"We don't believe it will affect our ability to maintain our record of double-digit earnings per share (EPS) growth," Foster's chairman Frank Swan told shareholders at the company's annual general meeting October 23.

One of the company's financial objectives is annual normalised EPS growth of 10 per cent.

Mr Swan said, however, that there would be some increase in the cost of inputs to make both beer and wine as a result of continued dry conditions.

"Combined with the northern hemisphere drought conditions in some supply areas, they will put pressure on supplies of those products in Australia as well," he said.

"So there are some pressures in relation to supply of grains for beer, but they've been taken into account.

The national barley crop this year is forecast at about 5.8 million tonnes, a fall of 41 per cent from the 2005-06 harvest, which has already seen some brewers facing price hikes of up to 33 per cent for malting barley.

Even Germany, the home of beer, is facing a barley shortage, with their crop cut from 1.6million tonnes to about one million.

But Mr Swan said the drought was not expected to result in Foster's missing its target of earnings-per-share growth of 10per cent or more.

"We don't believe it will affect our ability to maintain our record of double-digit earnings-per-share growth," he said.

"In the case of wine, it's a little bit too early to tell."

Mr Swan said the drought and recent frost had affected the grape harvest and if the drought continued a lower vintage was expected.

But he said the quality of grapes would still be very good.

Mr Swan also told shareholders the company's best defence against any takeover was its own performance.

"So we will be concentrating on maximising the performance of the business ... to prevent an acquisition, or, if there is an acquisition that comes across, then the acquiring company would have to pay absolutely top dollar for it," he said.

Foster's chief executive Trevor O'Hoy said any potential acquirer would have to take into account the fact that Foster's was still integrating winemaker Southcorp, which it acquired in May 2005 for $3.2 billion.

Foster's has been the subject of takeover speculation in recent months as private equity firms pounced upon a range of Australian companies.

Mr O'Hoy would not be drawn on whether or not Foster's was involved in a takeover play, either as prey or predator.

"We have some teething issues, we're creating new (business) models around the world in what we do ... and we have the integration although 95 per cent there is now complete, we've got to finish that over the next six to 12 months, probably 12 months," he said after the meeting.

"Someone who was looking (at acquiring Foster's) would look at that and say do they want to buy into that while the experts are bedding down."

But Mr O'Hoy added that nothing was ever highly unlikely.

"You cannot predict capital markets," he said.

Mr Swan told shareholders Foster's remained confident of achieving all of the financial targets set out when it acquired Southcorp.

Foster's beer brands continued to perform well in Australia, Asia and the Pacific.

Globally, wine volumes continued to improve and Foster's expected to achieve category growth levels by the end of this financial year.

But in Australia, wine volumes continued to perform below category as Foster's continued its shift to a new multi-beverages sales model.

Underlying wine volumes and revenue growth trends in the Americas continued to improve.

Europe, the Middle East and Africa was performing strongly and a promotional campaign in the United Kingdom was driving volume growth well ahead of last year.

Foster's shares were six cents higher to $6.42 at 1417 AEST.

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