That noise you just heard is the sound of jaws dropping and hitting the ground after Foster’s told investors in today’s profit statement that it was expecting low double digit ‘normalised earnings per share’ growth in 2005.

Not profit growth, EPS, which has been made to look good thanks to the buyback conducted for the half by the company. Operationally Foster’s continued to stagnate in both revenue and earnings (profits). It was another in the now familiar bursts of optimism from this company that have not been matched by performance for more than two years.

In fact the recent run up in the share price, punctured by the bid for Southcorp, bore no resemblance to actual performance by the company in the latest half, except that investors were punting on a huge capital return instead of that bid.

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It sounds like the tooth fairy has been in amongst directors and managers at Foster’s sprinkling magic believing powder again if that’s the case after yet another lack lustre result from the country’s biggest grog group.

Here’s an early report on the result from AAP – Foster’s says it’s poised for growth. That’s putting a spin on a set of figures that would leave shareholders confused, especially the use of ‘normalised’ figures.

But what is clear is that the buyback in the company’s shares over the past few months has had the primary influence (and the expected bigger buyback) on improving earnings per share (a ratio that helps price the company’s shares and is closely watched by investors and analysts) than any significant improvement in operating margins over the whole group.

Earnings per share were the only significant ratio to show any real meaningful improvement, thanks to the buyback.

This is from the above report:

“The company reported a first half net profit of $757 million for the six months to December 31, 2004 down 0.9 per cent on the previous corresponding period.”With the major operational reviews now behind us, Foster’s is at the front end of a sustained period of strong organic growth,” the company said.”In terms of the outlook for fiscal 2005, Foster’s is poised to deliver low double digit normalised EPS (earnings per share) growth for the continuing businesses.”

But Foster’s would say this given it has the controversial and high-priced bid for Southcorp on the table. To say anything less optimistic would invite attack from Foster’s shareholders concerned that the company was paying too much for Southcorp and not worrying about the financial impact on the company’s still struggling performance.

Beer at CUB continues to do well, although the beer market fell and yesterday’s poor news from Lion Nathan seems contained to that company with beer sales down in Australia and New Zealand. Prices were cut in the latter market as well and it seems to be a much tougher market for Lion than CUB.

Lion Nathan shares slumped sharply after the earnings update, falling 58c at one stage Monday before recovering 2c in early trading Tuesday to $7.59. Foster’s shares fell 9c to $5.31 after its interim was released Tuesday but then recovered to finish higher for the day.

The wine experiences seem to be the same for both, although Fosters’ Beringer Blass group is hard to work out at the moment, given the amount of restructuring still continuing. Now the Foster’s board wants to add Southcorp.

This latest result will only emphasise in shareholder minds that the $4.17 is a very high price for Southcorp, given Foster’s own lagging performance, and news that the Southcorp board is going to get a favoured group of consultants in Bain and Co to do a valuation based on Southcorp’s strategic value and not its investment value.

Pie in the sky would be more like it.

Obviously the Southcorp board, led by CEO John Ballard, chairman Brian Finn and his deputy, ‘Dame’ Margaret Jackson believe in fairy tales and synergy as a way to value companies rather than cold hard cash and earnings.

Here’s a report on the news that there will not be an independent valuation of the company (just like National Foods).

Let’s see directors put their money where their mouths are by issuing a swag of shares or options to themselves at prices at whatever range or value Bain comes up with.

Margaret Jackson for Foster’s chair?

Here’s a hot tip. Southcorp deputy chairman Margaret Jackson is playing a big role in the negotiations with Foster’s over their current takeover jousting and Foster’s chairman Frank Swan is getting on and has been in the chair for a few years now.

There is no heir apparent on the Foster’s board so what odds that a takeover deal will be agreed, Jacko will be one of the Southcorp directors “invited” to join the Foster’s board and then, hey presto, Australia’s biggest board hopper would then become chairman of Foster’s a year or two later.

Don’t laugh. This scenario is doing the rounds of the directors’ club.

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Peter Fray
Peter Fray
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