Foster's FY Beats Views, Wine Still Challenging

 SYDNEY (Dow Jones)--Foster's Group Ltd. (FGL.AU) said Tuesday full-year net profit increased nearly fourfold in the year ended June 30, but that growth came off a year in which it had taken substantial writedowns on its wine business.

Foster's booked writedowns on the troublesome wine business in the year to June 30 as well, albeit not as many charges as in the prior year.

The company said in February that it would restructure its wine business after failing to sell it and flagged up to A$415 million of potential writedowns as a result. The writedowns for the year to June 30 totaled A$397.6 million, compared with A$602.9 million of writedowns in the prior year.

Management didn't offer guidance for fiscal 2010.

"There are so many things that are moving pieces in this mosaic that I think it's not something that I want to be prognosticating upon," Chief Executive Ian Johnston said on a conference call with reporters. "I don't think we're in a position to say when we think the economy's going to pull out."

For fiscal 2009, net profit was A$438.3 million, compared to A$111.7 million the year before. Analysts had expected Foster's to report earnings of A$424.6 million, according to a Dow Jones Newswires poll. Before writedowns, the beverage company reported earnings of A$741.5 million.

Analysts have been looking for signs that the wine business is starting to improve, but Foster's said conditions in key wine markets remain challenging during fiscal 2010 due to economic conditions.

Foster's said it has reduced customer inventories and reshaped its portfolio in 2009 and that it's "well placed" for an economic rebound.

As for its beer business, which analysts called its "saving grace" in fiscal 2008, Foster's said Tuesday the Australian market remains "very robust."

It has been thought that the beer market has been inadvertently supported by a government tax on other alcoholic drinks, specifically ready-to-drink beverages that mix spirits with sodas and other flavors. That tax, which came into effect in May 2008 in a bid to combat teenage binge drinking, made beer a cheaper alternative. Analysts have expressed concern that the beer market's growth over the past year could be attributable to that and is therefore unsustainable at its recent pace.

There has been speculation that the group might consider a demerger of the beer and wine businesses but management said Tuesday that nothing has changed since the group announced it would be restructuring its wine division in February.

"We're literally only six months past when we made our original announcement," Johnston said. "In that time, we've only just started to execute the transformation. There's nothing that's happened between now and February that would change our mind that the major task for us, for shareholders, is...changing the way this business goes about its operations." Foster's revenue for fiscal 2009 was A$4.49 billion, up from A$4.37 billion last year.

The company will pay a final dividend of 15.25 cents a share, up from 14.25 cents last year.