By Ian Neubauer
Foster’s Group CEO Trevor O’Hoy is facing mounting criticism despite reporting today a 6 per cent increase in net profit for the first half of the 2007-08 fiscal year, and a 9.7 per cent increase in earnings per share.
But the seemingly positive result was overshadowed by a 32 per cent fall in net sales in the Americas region, a soaring Australian dollar that stripped millions from the brewer’s half-year result and consistent poor returns from the brewer’s wine business.
“Performance in Australia, Asia, [the] Pacific and Europe was strong, with improved product mix, revenue growth and cost performance,” O’Hoy said.
“However, our North American earnings were impacted by exchange rates, a slower US wine market in November and early December, a decline in merchandising effectiveness and a planned change in mix.”
Foster’s spent $2.9 billion on US-based Beringer Wine Estates in 2000 and $3.7 billion on Southcorp in 2005 — acquisitions observers now blame for the company’s lack of profit growth under O’Hoy’s stewardship.
“With the Southcorp purchase, Foster’s paid too much and did the deal for empire-building purposes rather than a clear-headed assessment of whether the numbers stacked up,” opined The Australian Financial Review.
Foster’s share price has increased 32 per cent since O’Hoy was promoted from CFO to CEO in 2004 — a far cry from the 62 per cent growth rate seen in the benchmark S&P/ASX 200 Index in the same 46 month period.
Investor unrest has fuelled speculation Foster’s may need to reassess its ‘multi-beverages’ distribution model, restructure shares to create separate entities and dividend rates for wine and beer, or altogether dump the brewer’s wine business.
But a resolute O’Hoy insisted the multi-beverages strategy was right for Foster’s and that the company still had a future in wine.
“We make great wine and have some wonderful global wine brands, but we are yet to make it a great business,” he said.
“The Foster’s management team and I are united in our resolve to grow wine returns and remain absolutely committed to driving shareholder value.”
Foster’s shares fell 2 per cent today, losing 11 cents to close at $5.77 per share.