Wine’s doing poorly for Foster’s; now the booze giant says its beer operations are losing some of their fizz.
With the Aussie dollar near parity, two poorly performing businesses (with beer’s woes down to reluctant local drinkers), the company is doing it tough and has lost a lot of its recent takeover shine.
The slowdown in beer emerged in yesterday’s market day for investors.
Foster’s held the first day of a two day presentation to analysts and investors yesterday in Sydney. The briefing notes were released to the ASX.
The company is now expecting a 4% to 5% decline in its CUB beer business, before some improvement in the second half.
But the beer business will still see "negative" sales growth for the 2011 year, according to a senior executive yesterday.
The honesty yesterday had a small, but positive impact on the company’s share price, which edged up 4c to $6.10, 5% under the 12 month high of $6.44 hit early last month amid the speculation of corporate activity after the private equity approach for the wine business.
Foster’s said the short-term outlook for its Carlton & United Brewery beer business was subdued.
Foster’s recently rejected an offer from private equity firm Cerberus worth up to $2.7 billion for its wine business as too cheap, leaving the door open to better offers.
There was talk earlier in the year of interest in its beer operations, especially with the group about to demerge.
The company also said the demerger review was on track to be completed by early next year with Carlton & United Breweries beer operation due to be listed separately from wine in the first half of 2011.
"We’re on track to complete the work, including all the technical issues, by early 2011," said Foster’s chief executive Ian Johnston while opening the briefing.
Carlton & United Breweries managing director John Pollaers told the briefing that CUB’s market share had fallen from around 51% to 50% over the last year.
He said CUB’s "strong" track record of earnings, margin and cashflow growth had masked a significant decline in market share in both on-premise (restaurants and pubs) and off-premise (packaged beer) markets.
Modest sales growth had been driven by price increases above inflation, and earnings driven by aggressive cost and investment management.
But he confessed that it would be harder in future to drive earnings growth using those levers.
Mr Pollaers said CUB’s portfolio of beer brands had not been adequately aligned towards categories that were growing strongly, and CUB’s execution of strategy needed to improve.
In the traditional regular beer category, which is the largest beer segment, CUB has a 65% share (through VB and Carlton Draught), while it had a 49% share of the light beer category through brands like Cascade Light. Unfortunately for Foster’s, Mr Pollaers said these categories were in decline.
"By contrast, we have 54% of the faster growing premium domestic category, with brands such as Carlton Lager; 26% of the fast-growing craft category, with Fat Yak the fastest-growing craft brand; 37% the new-style-regular category … with the fastest new-style brand being Carlton Dry; and 45% of the premium international category.
"While these market share positions would be the envy of most international brewers, the reality is we’re overweight in the declining categories and underweight in the faster growing categories of new-style-regular, premium international and craft.
"The bottom line is that even if we hold our market share in each sub-category, in aggregate we would lose around half a percentage point of market share per annum as the market shifts to the faster growing categories." Catch 22.
CUB finance director Stephen Matthews said, "We expect pricing and mix to remain more subdued during this period, and in FY11 (the 2011 financial year) we expect the category to decline by between four and five per cent in the first half and in the second half to see some improvement, but still negative".
