Sydney Morning Herald

Foster's Group, Australia's largest brewer, says the split of its beer and wine divisions was on track for next year, but was silent on growing takeover talk for its profitable $12 billion beer unit.

Foster's Carlton & United Breweries beer operation, which is due to be listed separately from wine in the first half of 2011, helped lift second-half profits thanks to higher prices.

Beverage giants SABMiller and Japan's Asahi Breweries are eyeing Foster's beer business but have not yet made any formal offers.

Foster's share price has been on a rollercoaster ride on the takeover talk, surging 7 per cent on Monday and sliding 4.5 per cent today as investors hope for more detail on potential approaches.

"The real question is the timing of any deal," said ArnheFm Investment Management partner Theo Maas.

"Anyone who is looking to buy the beer business wants to make a clear break with the wine business, but if we do have two or three serious bidders, I doubt they would wait till the complete demerger has gone through," he said.

Foster's said in May it would split the beer unit from its ailing wine business, putting brands including Foster's Lager, Victoria Bitter and Pure Blonde at the centre of takeover talk in the brewing world.

"There are a lot of issues to consider, and we are on track to unscramble these complexities," Foster's chief executive Ian Johnston told analysts today.

He said Foster's was working on separating commercial, tax and accounting functions, and in coming months would split corporate structures and logistics.

The wine business, valued at $US2 billion to $US3 billion, is not expected to attract any bids due to tough global conditions.

The Australian beer market is a virtual duopoly with some of the highest profit margins in the brewing world. Foster's controls half the market, with most of the rest held by Japan's Kirin-owned Lion Nathan.

Better second half

Foster's second-half profit before one-off items rose 7.8 per cent to $355.6 million, according to calculations based on full-year reported earnings.

Higher prices for beer and cost-cutting helped to offset a 3 per cent decline in volume as consumer spending slowed.

Carlton and United Breweries brands are mostly slow-growing mainstream beers and the company wants to boost its share of the higher-margin premium market.

The beer division, run by former navy weapons' engineer John Pollaers who is the sixth managing director of beer in seven years, generates 85 per cent of group earnings and has a profit margin of 38.5 per cent.

Full-year net profit fell 4.1 per cent to $711.3 million, beating analyst expectations for $680 million.

That excluded a massive writedown for its beleaguered wine business of $1.27 billion, announced in May. It was the third major writedown for wine, bringing the total near $3 billion.

Foster's did not pay a final dividend after taking the writedown on wine, which includes the Beringer, Penfolds and Wolf Blass brands. But it said it would seek to amend its constitution to be able to pay a dividend after October.

Wine operations have been hurt by weak sales in recent years, while the Australian dollar's relative strength also proved to be a drag as it reduced the value of US wine earnings.

Wine sales have been hit by a deep US recession and a trend away from low-end, bulk wines in Australia.

Full-year earnings in the wine division were down 27.2 per cent. However, on a constant currency basis earnings were up 20.5 per cent for the year, helped by better sales and efficiency programs.

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