Foster's Group Limited (Foster's) today announced the outcome of a comprehensive review ("the Review") of its Global Wine Trade business.
The Review was initiated in January 2004 in response to more competitive wine industry conditions, particularly in North America. These difficult circumstances are the result of an oversupply of wine, which led to the emergence of new categories such as extreme value wine, and a simultaneous slowdown in the historical growth rates for premium priced Californian wine.
Although BBWE continues to lead the industry in terms of margin and cash generation, its performance has been adversely impacted by these, and other business-specific factors, including a lower level of brand investment in recent years.
Highlights of the initiatives to be taken as a result of the Review include:
The Review will result in the immediate implementation of a range of initiatives aimed at delivering:
The Review is expected to generate gross efficiency gains of A$60 million per annum by F07 increasing to about A$85 million per annum by F09. Approximately half of these efficiency gains are expected be re-invested into brand building and innovation.
In addition, the infrastructure consolidation activities in North America and Asia Pacific will result in at least a 40% reduction in planned capital investment, compared with that announced at the full year (of approximately A$150 million).
Total Wine Group capital expenditure is estimated to be approximately A$100 million per annum over the period F05 to F09.
The Review will result in write-downs and specific provisions, in addition to those announced at the half year, estimated at between A$270 million and A$300 million, which will be included in the F04 full year results.
The SGARA impact arising from the disposal of bulk wine and vineyard divestments is expected to be less than an additional A$12 million in F04.
The financial implications of the Review are outlined in detail on pages 9-11 of this announcement.
Several key management changes will also take effect over the next six months. Walt Klenz will retire at the end of December but has agreed to continue as a senior adviser to the Board and management after that date.
Jamie Odell will take over as Managing Director, BBWE with effect from 1 January 2005, and will be responsible for implementing the Review's recommended initiatives, reporting directly to Mr O'Hoy.
Wine Clubs and Services did not form a central part of the Review. However the competitive environment, efficiency, structure and portfolio fit of these businesses will continue to be an area of focus for management.
In order to ensure the complete focus of the Wine Trade management team on the successful execution of the Review's initiatives, Neville Fielke, currently Senior Vice President Global Business Development, has been appointed Managing Director, Wine Clubs and Services reporting to Trevor O'Hoy.
Commenting on the outcome of the Review Foster's President and CEO, Trevor O'Hoy, said:
"BBWE is among the world's leading global wine companies and already enjoys some significant competitive advantages, namely a portfolio of strong wine brands and one of the most impressive premium footprints of any major wine company."
"The implementation of the Review's recommendations will build on BBWE's strengths and position the business strongly for the future."
"By establishing a business model that is more flexible and responsive to consumer trends, BBWE will be better able to meet supply and demand requirements through market cycles."
"A renewed focus on brand investment, new product development and innovation will further underpin BBWE's ability to produce exceptional quality wine at all price points."
Mr O'Hoy said that, while the Review's initiatives will deliver sustainable high quality earnings and cash flow, management would continue to focus on improving the capital efficiency and return profile of the Global Wine Trade business.
"Foster's strategy of business balance and diversity, which combines the growth opportunities in wine with the strong cash flow and high returns of beer, has delivered overall reasonable returns for the group despite recent difficulties experienced by the global wine business."
"This combination of growth and returns provides Foster's with a significant competitive advantage and underpins its ability to deliver strong total shareholder returns."
Media
Lisa Keenan
Tel: +613 9633 2265
Mob: 0409 150 771
Investors:
Robert Porter
Tel: +613 9633 2560
Mob: 0407 391 829
BBWE Trade Operational Review (PDF, 253 Kb)
