Australia: Foster’s barley costs rise

Foster's Group Ltd. FGL.AX, Australia's top beer and wine maker, expects its grape and barley costs to rise as a result of Australia's drought, but expects to be able to pass most of those costs through to customers, Reuters reported December 6.

Chief Executive Trevor O'Hoy said the company's scale and technology had helped it to prepare for and weather the drought.

"We are very well positioned, so it's not catastrophic," O'Hoy told reporters after speaking at a business lunch.

He said the company's use of aerial photography to predict grape yields and its ability to negotiate discounts with grape and barley suppliers because of its size and reliability as a customer gave it a competitive edge.

"In both cases we will expect higher costs. But, again, I say it's manageable in our case," O'Hoy said.

He reiterated that the company had not been approached by any private equity firms or any other potential suitors, despite takeover speculation that has driven Foster's shares up 26 percent between August and November.

Foster's shares fell 1.5 percent to A$6.43 on Wednesday in a market that was up 0.6 percent.

O'Hoy did not see Foster's as more vulnerable to a takeover now that it has completed its integration of Southcorp, which it swallowed up 18 months ago, culling A$165 million ($130 million) in costs.

He believed private equity investment in Foster's would not be good for the business, because of the short-term time frame that private equity firms have for generating returns.

"For long term businesses I'm not so sure whether it's a really good thing," he said at a business lunch.

"I think it's probably net negative. But it's not for me to comment about capital markets. If the capital's there, we have to respond to whoever our shareholders are. Different shareholders have different criteria," he said.
($1=A$1.27)

07 December, 2006