Foster’s has spent billions on wine
(probably the best part of $6 billion since 1999), but the heart of the
business remains the reliable CUB beer and alcohol products businesses
that churn out cash year after year. And so it was in 2005. A lot of
words and action in wine; huge profits and cash flows from beer in a
declining market.

Foster’s still struggles to grow wine sales
and profits at any significant rate in markets showing greater growth
than beer in Australia. The performance in beer is open, fairly
transparent and nowhere as confused and illusory as in the many parts
of the company’s wine business, which is busy being revamped to include
the Southcorp purchase.

The best Foster’s management and board
could do in its commentary for the coming year is repeat the mantra
that they expect a 10% growth in earnings per share in the coming year,
as this early AAP report says.

Foster’s
earned $936 million in 2005 and the wine businesses now account for
around a third of earnings at $318 million (on an earnings before
interest tax and amortisation). There was also a $20.5 million
contribution from Southcorp in the last month and a bit of the
financial year.

But CUB earned 11% more at $577.3 million (on an
EBITA basis). Sounds boringly average, and it sort of was until you look
at how it was earned. Total beer volumes (in 9 litre cases) fell 1.0%
to 102 million cases. Total alcoholic volumes (again in 9 litre cases)
fell 0.3% to 108 million cases.

The Australian beer market
declined 1% in 2005 as drinkers moved away from light and draught beers
and towards the premium beer segment – CUB sales of these grew 3.7%.

But
the big star was the ready to drink segment (RTDs) – ready made mixed
drinks aimed at the youth market. In a market that grew 10.5% in volume
over the year. Foster’s lifted its RTD sales volumes 24.9%. And in the
so-called glassed spirits (that is spirit based drink in bottles, such
as whiskey) Foster’s’ sales rose 7.6% in a segment where sales fell
3.6%.

But it’s quite an achievement to lift sales of beer in a
declining market, RTDs at more than double the market rates and spirits
in a segment where sales fell, while lifting prices for many of these
products at the same time. These are old fashioned skills in the new
Foster’s which is dominated by a group of managers and board directors
desperate to make the Southcorp adventure pay off, in some way.