Foster’s Targets Increased Domestic Sales of Australian Wine

March 27 (Bloomberg) -- Foster’s Group Ltd., Australia’s biggest beer and winemaker, may keep more of its domestically made wine for local sales as it seeks to revive earnings growth.

“We are overweight in Australia exporters and underweight in smaller countries of origin,” Chief Financial Officer Angus McKay said in an interview yesterday. Melbourne-based Foster’s, the world’s second-largest winemaker with brands including Penfolds and Beringer, exports about two-thirds of the 30 million 9-liter cases of Australian wine it produces each year.

Chief Executive Officer Ian Johnston is trying to reverse domestic market share losses and revive growth by splitting his wine and beer sales force into separate teams, reversing the strategy of predecessor Trevor O’Hoy. Foster’s decided to keep the wine unit, whose earnings are less than they were seven years ago, as the global recession ruled out selling a business that took a decade and A$6.8 billion ($4.8 billion) to create.

Apart from trying to meet overseas demand with more wines made from countries such as Chile, Foster’s will also seek to boost domestic consumption of its wines made in Australia, McKay said in an interview in Hong Kong.

Earnings from wine have been affected by grape gluts and increased competition in the U.S. and Australia since Foster’s acquired Beringer Wine Estates Holdings Inc. for A$2.6 billion in 2000. The company embarked on its wine expansion in 1996 as it sought to limit the impact of stalling beer sales by paying A$482 million for Mildara Blass Ltd. After the Beringer acquisition, the winemaker bought Southcorp Ltd. in 2005 for A$3.2 billion.

Wine Production

Foster’s produced almost 39 million cases of wine in 2008, with 30 million from its Australian vineyards and the rest from the U.S., Chile, Italy and New Zealand. About 70 percent of its A$2.1 billion of annual wine sales come from Australian brands.

The wine business had earnings before interest and tax of A$243.3 million in the six months ended December, compared with A$253.7 million for the same period in 2002.

The winemaker is cutting 300 jobs and will sell 36 vineyards representing 5,000 hectares (12,355 acres) of grape- growing land in the U.S. and Australia. The company will also sell or end 37 wine brands, which had A$60 million of sales in 2008.

“I do not expect restructuring changes will have an adverse effect on Foster’s financial position or credit rating,” McKay said after a presentation at a conference hosted by Credit Suisse Group AG.

Foster’s is the world’s largest winemaker behind Fairport, New York-based Constellation Brands Inc.

To contact the reporters on this story: Robert Fenner in Melbourne rfenner@bloomberg.net