Foster's To Keep Wine

By Ian Neubauer

Foster’s Group multi-beverage strategy is no more.

Following yesterday’s (Feb 17) announcement on the outcome of its long-anticipated wine review, Foster’s will strategically split its operation along two key lines: beer, cider and spirits (BCS), which will revert to the old-school Carlton & United Breweries identity; and wine, which will operate under a new identity yet to be announced.

Other changes will include the appointment of a new and experienced leadership team, the axing of about 300 current employees — including senior management and members of the board — the divesting of 36 non-core vineyards and the sale of more than 37 ‘tail’ wine brands.

The company’s Australian sales team will also be beefed-up with new roles in specialist wine sales, marketing and support roles.

Combined, the measures are expected to rationalise the wine business into a smaller, high-yielding unit focusing on core labels like Rosemount, Lindemans and Penfolds, and bring about annual cost savings in excess of $100 million by 2011.

Foster’s chairman David Crawford said selling the wine business in today’s market was not in the best interest of shareholders.

“In light of the opportunities available to improve performance, the board has determined that shareholder value will be maximised by retaining the wine business,” he said. “The current difficult conditions in debt and equity markets mean this is not the appropriate time to sell or demerge Foster’s wine business.”

Added CEO Ian Johnston: “The review has identified that poor execution and an ineffective organisational structure and culture have adversely impacted operating performance. The business has failed to keep pace with a dynamic market where execution is critical. Innovation rates have been below market and the portfolio has not been sufficiently adapted over time to take advantage of growth segments and mitigate exposures.”

Foster’s new leap forward will result in write-downs in the range of $330-$415 million in addition to the $600 million that was written down when the review was launched in April last year.

Foster’s shares were not markedly affected by the release of the review. The shares were trading for $5.27 at 3:00pm today (Feb 18) compared to $5.25 two days ago.

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[Wed 18/02/2009 02:34:38]