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Premium push lifts Foster's half-year profits

By Neil Merrett , 19-Feb-2008

Australia-based Foster's posted half-year sales growth of 3.2 per cent in organic terms to AUS$2.3bn (€1.4bn) as growing demand for its premium brands partially offset a slowdown in its US wine segment.

Operating profit for the six-month period reached AUS$632m, a 9.1 per cent increase over the same period last year, with operating margins up by a percentage point to 26.9 per cent on an organic basis, the brewer said.

 

 

 

Company chief executive Trevor O'Hoy said that a continuing focus on shifting its portfolio towards premium products, along with increased pricing and production efficiency had led to the profit growth.

 

 

 

He added that sales growth benefits were the result of growth through the group's international presence.

 

 

 

"[The] performance in Australia, Asia, Pacific and Europe was strong, with improved product mix, revenue growth and cost performance," O'Hoy stated. "However, our North American earnings were impacted by exchange rates, a slower US wine market in November and early December, and a decline in merchandising effectiveness."

 

 

Australia, Asia Pacific performance

 

 

Of its domestic and Asian Pacific operations, Foster's said that sales revenues of its beer, cider and spirits segment increased by 5.4 per cent in organic terms, though wine revenues fell 3.9 per cent.

 

 

Beer and cider sales benefited from the performance of premium brands like the Mexican beer Corona, which continued to lead growth with sales volume improvements of 36.1 per cent, the company said.

 

 

The performance of the group's wine brands in the region reflected an ongoing restructuring from cask and low margins wines to more premium varieties, Foster's claimed.

 

 

 

Americas

 

 

In its Americas operations, Foster's said that in organic terms, sales of its beer, cider and sprits ranges were up by 36.4 per cent.

 

 

 

However, wine sales growth proved stagnant over the half year, growing by just 0.3 per cent organically, and falling 11 per cent on a constant basis.

 

 

 

Despite the increases, the company said that operating in the regional market had proved challenging over the half, with a slowdown in US consumer spending hitting its operations hard in November and December.

 

 

 

Shipments of the company's Australian wine were also down by 8.7 per cent over the second quarter, Foster's said.

 

 

 

Europe, Middle East and Africa

 

 

Foster's combined operations in Europe, the Middle East and Africa posted an eight per cent organic decline in sales of its beer, cider and spirits brands. However, wine sales in the three regions were up by 11 per cent on the same terms, resulting from a strong performance in all markets.

 

 

 

On organic terms wine sales on the UK were up by six per cent, while the other markets posted a combined 12.8 per cent increase.

 

 

 

During the second fiscal half, the company said it intended to enact selective price increases for its Australian brand in a bid to offset higher production costs for its products.

 

 

 

The company stressed it will also attempt to push its non-Australian sourced wine brands in the three regions as well.

 

 

 

Looking ahead

 

 

Foster's said that it expected to continue to undergo improvements in both profits and sales over the full financial year, with earnings per share predicted to be up by about 10 per cent.

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