Foster's to Return $520 Million in Bid to Resist SABMiller Takeover Plans

The news came as Foster’s Group reported earnings before interest and tax and before material items of $816.7 million, an 8% decrease on the prior year.

Aug 23 2011 --- Australia’s biggest brewer, Foster’s Group Ltd. (FGL) has announced that it will return at least A$500 million ($520 million) to investors as it resists SABMiller Plc (SAB)’s hostile takeover bid. The country’s largest brewer proposed to return money to shareholders through a share buyback or capital reduction in an effort to get SABMiller to increase its 4.90 dollar-a-share offer, which Foster’s has twice rejected as too low.

The news came as Foster’s Group reported earnings before interest and tax and before material items of $816.7 million, an 8% decrease on the prior year. The decrease reflects a 6% decline in Australian beer category volume and higher Corporate costs relative to the prior year which included one time benefits.

CUB’s EBIT declined 6.2%, in line with the decline in the Australian beer category. However, improved cost efficiency mitigated the impact on CUB earnings and allowed CUB to increase advertising and promotion by more than 4%.

Operating cash flow from continuing operations before interest and tax was $872.7 million and cash conversion was 100.4%.

Earnings per share from continuing operations before material items fell 8.9% to 25.6 cents. Foster’s declared a final dividend for fiscal 2011 of 13.25 cents per share. The total dividend for fiscal 2011 was 25.25 cents, representing an 83% payout ratio on net profit after discontinued operations but before material items.

Commenting on the results, Foster’s Group CEO John Pollaers said: “This has been a transformational year for Foster’s and I’m pleased to say that the turnaround is on track.” “The successful demerger of Treasury Wine Estates was completed in May, with the overwhelming support of our shareholders. Foster’s is now an exciting “new” company with a bright future as a great Australian success story with a focus on beer and cider. That focus is an important point: Foster’s is now able to dedicate all of its considerable financial resources and industry expertise to the beer and cider business. “The initiatives put in place as part of a phased turnaround plan at the beginning of fiscal 2011 have addressed the fundamental business challenges we faced. “The turnaround is by no means complete we’re well aware of the challenges we still face. But a lot of hard work has been done to get us in shape for the future and I am very pleased with the progress to date.

“One of the key wins for us in the past year has been stabilising our market share, correcting a long term trend of decline. The stabilisation of market share reflects strong growth in the on premise channel combined with a more modest decline in the larger off premise channel.” “As a result, CUB’s Australian beer volume decline was in line with the rest of the market, and strong growth in cider sales saw our overall volume just over 5% lower.

“The impact of that volume decline was minimised by the tough decisions we made on costs last year. We made a very deliberate decision not simply to cut costs, but also to increase investment in our brands, with advertising and promotion increasing by more than 4%.

Mr Pollaers said that in addition to the efficiencies already built into the organisation, the cost reduction program commenced in May will drive additional benefits in 2012 and future years. “The first phase of the program will deliver $55 million of annual benefits by the end of fiscal 2013, with $45 million of benefits in fiscal 2012.

“Today we’ve also announced the commencement of a supply footprint review.
“The review involves an assessment of the most appropriate long term asset footprint to support the CUB business. We expect to conclude the review within the next six months and it will include a review of all Australian production and logistics sites, and key supplier arrangements.” Meanwhile, success in the Ashwick tax case led to a continuing operations material gain after tax of $551.6 million.

Mr Pollaers said that a strong credit profile and proceeds from the Ashwick tax case have led the Board to pursue capital management options for the return of at least $500 million to shareholders. Options being investigated include a capital reduction and share buy back. A capital reduction involves seeking a tax ruling from the ATO, a process that commenced in July, as well as the approval of shareholders”, Mr Pollaers said.