Fosters - AFR article

CUB restructures as Foster's gets tough
Jul 8
Simon Evans

Carlton & United Breweries, the brewing division of Foster's Group, is set to undergo a sweeping restructuring as part of plans set by chief executive Ted Kunkel to deliver consistent earnings growth of more then 5per cent a year.

Foster's Australian beer division has been urged to step up its performance to ensure that fresh funds being diverted to the unit produce adequate returns on investment, with the emphasis on bringing new products to market.

Key CUB executives have been told that the division needs to be re-invigorated to counter perceptions that it is condemned to a low-growth future because the broad market outlook for mainstream beers is flat.

Several new projects are believed to be on the drawing board - both premium beers and ready-to-drink spirits.

The company is merging large parts of the sales functions between its previously separate Continental Spirits division and the CUB beer arm as part of the push.

CUB's role within the alcoholic beverages group is changing from its function - over the past few years - of being a cash cow to fund the big expansion in wine, now that the Beringer Blass wine business is moving toward being self-sufficient.

Some analysts believe there will also be a strong focus on cost-cutting at CUB in conjunction with the growth push.

The changes come as Mr Kunkel lifts the earnings before interest and tax growth hurdle for the division to between 5 and 6per cent from the previous 3 to 5per cent band.

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ABN Amro said in a report last week that it believed there were approximately $75 million to $100million of costs which could be pulled out of the business.

As part of the re-invigoration of CUB, Foster's is examining proposals in Western Australia to expand brewing capacity and cut transport costs, with more than 50per cent of its product having to be trucked from the eastern states because its Matilda Bay brewery at North Fremantle is at full capacity and cannot expand further.

CUB is examining the merits of either building a new greenfields brewery in WA or sharing production capacity with rival Lion Nathan, from which it has been taking market share in WA.

Foster's is adamant it would not sell its 130-strong hotel portfolio, which makes up the Australian Leisure and Hospitality division.

But the group has looked at the option of putting the properties into some form of property trust to release cash.