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Foster's could be takeover target

Published:  23 July, 2008

Only two years after it took over Southcorp, Australia's largest wine producer, Foster's could itself become a takeover target. That is the conclusion of some analysts Down Under following publication of disappointing figures from Australia's leading drinks producer.

The headline 90% rise in pre-tax profits in the six months to 31 December looks stunning, but was generated largely by sales of businesses in India and Vietnam.

Analysts, however, focused on the 3.5% rise in revenues, which they regarded as weak. That, they believe, could prompt other global drinks giants and private equity groups to consider Foster's as a takeover target, especially as Foster's shares fell by almost 5% on the day the figures were published.

Much criticism was levelled at the decision to merge Foster's beer and wine sales divisions in Australia, a move that is being reversed as the group struggles to meet the targets it set for the Southcorp operation.

In the six months under review, wine volumes rose by 3.1%, but chief executive Trevor O'Hoy admitted that the division had run into packaging and distribution difficulties.

Overall, he said that wine sales growth in Europe, the Americas, the Middle East and Africa had been strong but had been outstripped by declines in Asia, the Far East and Australia. Volumes of the group's five global wine brands rose by 4% and overall volumes rose by 3.1%, but in the all-important home market they fell by 9.3%.

Our challenge is to remove some of the short-term inefficiencies and deliver improved performance in wine here in Australia,' O'Hoy said. To that end, a new Wolf Blass bottling centre is being built, the sales force is being reshaped and the Rosemount brand has been relaunched in Australia as well as the UK after its volumes fell by 15%.

But Foster's is still having to contend with the glut of Australian wines despite this year's drought. Even so, Foster's believes it can achieve savings of about 70 million in the wine division by 2008 and says the company remains on course to meet its financial objectives in the year to 30 June 2007.