It was fitting that the AGM of Australia's biggest sin company, Foster's Group Ltd, was held at Crown Casino today. The Packers probably gave them a good price for the Palladium room because Foster's give Crown a big discount on liquor as Crown is Australia's biggest single venue for grog consumption and Lion Nathan don't get a look in.
Simon Evans set the scene nicely on the back page of this morning'sThe Fin Review when he pointed out that Foster's shares have remained stagnant around $4.50 over the past three years whereas Lion Nathan has soared from $3.70 to $5.52.
Chairman Frank Swan and long-serving CEO Ted Kunkel were on the defensive about the $2.9 billion Beringer wine purchase in 2000 which now looks like a mistake, especially given the surging Australian dollar and grape glut in California.
Crikey tried to put them on the spot by claiming Foster's shares would be above $5 today if they'd never bought Beringer and asked whether the company had done anything right on the international scene over the past 20 years. Shouldn't they have just sat back and milked the cosy beer duopoly in Australia whilst expanding into Australian wine and the pokies?
Afterall, Courage in the UK and China are acknowledged stuff-ups but what about the European wine clubs, Molson and Beringer?
Chairman Swan tried to guide Kunkel by saying that no-one could make a forecast on this but then Ted took the bait and went through each expansion one by one.
The Molson beer division, which he ran in Canada until becoming CEO in 1992, turned $1 of equity into about $550 million so this was an undisputed success. China was all about Asia and it was too early to tell given they are also in India and Vietnam. The European wine clubs "will turn around".
Kunkel maintains that "Beringer has added great value" but he has to say that as he'd be sacked if it was acknowledged as a mistake. Crikey predicts the next Foster's CEO will write-down Beringer because the wine assets are on the books at $4.8 billion and the groups carries a whopping $2.43 billion in intangible assets, most of which relate to wine.
Kunkel's silence on Courage suggests it was a disaster and this was the one international expansion that he had had nothing to do with either buying or running.
At the end of the day, Foster's is a good example of Australia's woeful record on the international stage. They've spent hundreds of millions building a global brand in Foster's Lager which hardly even sells in Australia. Yes, it's nice that we have a globally known beer brand but shareholders would probably have been better off without it. The majority of the company's international plays have backfired and if they'd not had delusions of international grandeur, shareholders would be a lot better off today.
That said, they've milked the Australian operations nicely but it really is time Ted Kunkel retired and let someone else have a go as he stuffed up two years back when his successor Terry Davis walked out and now won't let the truth be known about overpaying for Beringer.
Crikey rattled through four other issues at the Foster's AGM during a two-minute stint at the microphone. Firstly, we slammed the board for those appallingly sexist Cougar ads which chairman Swan said survived all complaints to the Advertising Standards Board and were meant to be "fun" and not taken too seriously.
The Greg Norman Estates joint venture in America got a mention in last year's Kunkel address but no mention this year so we asked if it was still booming with sales of about $60 million and gross earnings of $20 million or if it was a fad that was tapering off. Kunkel claimed the JV was "fit and well", Americans were buying even more of the stuff and margins were still strong. Given that Greg Norman owns 30 per cent of the joint venture, subscribers can rest assured that Norman, a close mate of Kunkel's, is still making more than $5 million a year by simply lending his name to the wine. Shane Warne must be jealous given his own wine label has flopped and this really is a case of "only in America" because no self-respecting European or Australian would buy wine badged under a sportsman's name.
The freshest issue we raised has not been mentioned publicly in the national media before. Crikey understands that the Gold Coast City council is very unhappy about the environmental impacts of the expansion of the Yatala brewery which is being done to cover the lost production from the closure of the Kent Brewery in Sydney.
Foster's had not satisfied the council's concerns when they announced the Kent closure and subsequent sale. Kunkel did admit that the Yatala expansion "is a matter of design and negotiation" with the council which is ongoing. This is surely a matter for some of the local journos to chase around because we hear Foster's have been thumbing their nose at some council demands and the expansion has substantial environmental implications.
Frank Swan kept on talking about the "$1.4 billion in gross proceeds" they will get from the sale of its pubs and pokies division ALH. Crikey asked about the net proceeds, whether it was true Macquarie Bank were going to score about $50 million from the sale and how they handled the conflicts arising from effectively selling the business to the investment bank advising on the sale. Swan said they wouldn't know the net proceeds until after the institutional book build and that even if Macquarie made "pretty good fees", their proposal provided the best return "by a significant margin". Naturally, he claimed the process was squeaky clean.
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