As promised in announcing the Wine review, significant transformation is underway at Foster’s.

Following an exhaustive review of our wine business, we have set a strategic agenda for the whole company, to improve efficiency, build capability and drive our growth.

New leadership is in place across the Group. The creation of a dedicated Australian beer, cider and spirits business, renamed Carlton and United Breweries, and a stand-alone dedicated Australian and New Zealand wine business sets the platform for improved performance in our most important region.

The sales teams now have dedicated focus on their respective product category, and we are refining our ‘route-to-market’strategies; a 25% increase in the Australian sales force materially improves the level of direct coverage of our customer base. In the Americas, we are reviewing our distributor relationships, and we have moved to a direct distribution model for our important Nordic markets.

These changes also provide the opportunity to redesign our administrative structure and eliminate complexity from the business. We are developing common, integrated information technology systems as a major enabler for greater efficiency, better performance monitoring, accountability and transparency.

Efficiency benefits of $21 million were realised in the year and the Group remains on-target to deliver $100 million in annual cost savings in 2011.

We are also making solid progress on other key outcomes from our Wine review including the sale of non-essential vineyards, brands and facilities in South Eastern Australia and the Californian Central Coast.

Most importantly, a new culture is being fostered as we draw upon the best of our heritage to drive a new momentum across the business. That culture is based upon desired behaviours encapsulated in the threeAs –Accountable, Adaptable and Aggressive. The threeAs set a clear example of how each employee can help deliver the high performance expected of Foster’s.

Delivering results

At the close of 2009, Foster’s is a strong company, with a solid balance sheet, conservative gearing and ready access to funds.

On revenues of $4.5 billion, operating cash flows before interest and tax rose almost 13 per cent to $1.4 billion with net profit before significant items and the agricultural charge of SGARA up 4% to $741.5 million. On a similar basis, earnings per share were up 4.6% to 38.5 cents.

The reported net profit of $438 million was after restructuring costs and write downs of vineyard, brands and inventory of $397.6 million. Directors declared a final dividend of 15.25 cents per share for a total annual dividend of 27.25 cents.

Foster’s Australia, Asia and Pacific Beer, Cider and Spirits business contributed the greatest share of earnings, with sales revenues up 2.5% and net earnings increasing 2.9%.

Wine remains a profitable business generating solid cash flows. The category shows good growth characteristics and Foster’s is an international leader in premium wine. Returns in the period, however, were impacted by challenging economic conditions and a collapse in consumer confidence in our key international markets. A shift away from on-premise consumption and luxury wines and higher costs of sales, reduced overall wine earnings by 7.3% to $363.9 million. Global wine sales volumes declined just over 5% mostly impacted by reductions in customer inventories in the Americas and Europe, and the final withdrawal from the cask wine sector in Australia.

Strong Brands

While much is changing at Foster’s, our commitment to lead innovation, invest in our brands and maintain the highest quality standards remains steadfast. Our brand measures show significant consumer support and innovation is driving growth.

In Australia, Foster’s sells seven of the top ten best selling beers. We boast three of the five fastest growing brands and three of the five largest new product releases by value in the past year. Our Carlton brand, established in1864, has grown to be Australia’s second largest selling brand, only marginally behind Australia’s favourite, our own VB.

We continue to expand our portfolio through recent innovations. In just five years since launch, Pure Blonde has grown to be an established mainstream Australian beer brand. Other successes like Carlton Dry Fusion Lemon and Lime, Carlton Natural Blonde, Pure Blonde Naked, Cascade Green, and a line of Matilda Bay innovations including the very successful Fat Yak, demonstrate our commitment to expanding our presence in growth segments.

Innovation is also key to driving sales growth in wine and building core brand equity. A focused innovation program for brands such as Yellowglen, Wolf Bass and Beringer is driving consumer interest.

Rosemount O, Lindemans Early Harvest and Wolf Blass Veraé demonstrate our ability to create new wine styles. A new range, “Maison de Grand Esprit", has been created in partnership with leading French winegrowers, and allows Foster's to bring some classic “old world” varietals to the Australian on-premise market.

Looking forward

Our aim on behalf of shareholders, our people and the communities in which we live and work, is to deliver consistent growth in total shareholder returns while successfully managing our social and environmental responsibilities. We plan to continue the transformation begun this year, to become more efficient, more competitive and to deliver profitable growth.

Foster's business strength, change momentum and strong brand health positions this great company to capture business opportunities and drive growth in 2010 and beyond.

 

David A Crawford                                                        Ian D Johnston
Chairman                                                                      Chief Executive Officer