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Foster’s Group Limited (FGL) has decided to spin-off its struggling wine division in the face of an Australian wine glut and flagging sales in the US. As a result of the spin-off Fosters’ said it would take a pre-tax impairment charge of between $1.1 billion and $1.3 billion.

The proposed demerger of its beer and wine business brings the curtain down on Foster's foray into the wine business, which began in 2005 when Foster's bought brands such as Penfolds, Lindemans and Rosemount from Southcorp.

The two divisions would be separate stocks exchange listings, with separate stand-alone organisational structures and management teams.

The move also paves the way for either the beer or wine business to be taken over.

CEO, Ian Johnston, said the beer business would have a new management team and would reinvest in its beer brands to continue its positive growth.

“Foster’s wine business is showing signs of growth but continues to be impacted by oversupply in Australia, subdued consumer demand in key international markets and a strong Australian dollar during the 2010 financial year,” Mr Johnston said.

The spin-off, Mr Johnston said, would offer a mixture of pros and cons, including greater flexibility and investment choice, offset by the costs, mostly one-offs, associated with establishing a new company.

“We are increasingly seeing the benefits of operationally separating the beer and wine businesses. While the beer and wine businesses are market leaders, they operate in separate market segments with different strategic and operating characteristics,” Mr Johnston said.

The non-cash impairment charge arises predominantly from a higher discount rate being applied to Wine, reflecting the way the business is now being managed, and higher long-term exchange rate assumptions, the company said.

Foster's, in a trading update, also said it expects EBIT for the year ending 30 June 2010 to be between $1,050-1,080 million, broadly in line with consensus estimates.

At the close Tuesday, Foster's shares closed at $5.15.

Foster’s Group Limited (FGL) said Foster’s Wine Estates (Americas) has signed long-term distribution agreements with The Charmer Sunbelt Group. The brewer said under the agreements Charmer Sunbelt would gain the exclusive rights to sell Foster’s portfolio of wines in New York, Maryland and the District of Columbia.

Foster’s said the agreements mark the first phase of a US Route-to-Market initiative launched upon the completion of the Wine Strategic Review in February last year.

Foster’s Americas managing director, Stephen Brauer, said the company was aligning with distributors who share its growth vision.

“Charmer Sunbelt has the capabilities and commitment in these key markets to grow our core brands, build our luxury portfolio and partner with us in bringing new, innovative brands and ways of working to the market,” he said.

Foster’s said the agreements would become effective as of 1 July 2010.

As at 1017 AEST, Foster's shares were down 8c to $5.19.

Australian Agricultural Company Limited (AAC) said it is enjoying improved seasonal conditions to those faced in the past two years. The company said the world supply of beef remains limited by historically low herd numbers and cattle prices have recovered from their December lows.

Speaking at the company’s AGM  today chairman, Nick Burton Taylor, said the conditions have encouraged AAco to further increase its cattle numbers, with an additional 45,000 head purchased in the first quarter.

"Further mortality rates have improved to past levels and early indications are that our calving rates will be above last year,” Mr Burton Taylor said.

”We have sustained the strong focus on efficiencies and managing overheads which has been a feature of recent years.”

CEO, David Farley, said there is a growing long-term demand for beef globally.

”Beef consumption is expected to grow by more than 10 million tonnes in the coming decade, driven primarily by the rapidly developing emerging economies, population growth, and the increased middle class purchasing power in those economies,” Mr Farley said.

”Nowhere else will this demand growth be more apparent than on our doorstep – South and South East Asia.”

Mr Farley said there is a looming structural beef supply shortage.

”Not enough new beef grazing land can become available and the expanded use of grains for ethanol production will increase the cost of grain-fed production,” he said.

”Competition for land and resources will restrict the expansion of existing facilities.”

As at 1109 AESt, AAco shares were up 1c to $1.47.

AWB Limited (AWB) posted a net loss of $64.8 million for the six months to 31 March, 2010. However the rural services company said the company’s forecast of a full year pre-tax profit, pre significant items for continuing businesses of $85 million – $110 million remains unchanged.

AWB said the loss was prompted by two major items in the half year. Firstly the settlement of the Watson shareholder class action for a pre-tax sum of $39.5 million. Secondly, a pre-tax sum of $65.4 million in costs associated with the sale of the Landmark Financial Services loan and deposit books.

Without these impairments, AWB would have posted a profit of around $32.8 million for the six months, the company said.

CEO Gordon Davis said the company was confident of a stronger second half following good summer and autumn rains.

“In addition, ACM’s Grain Marketing business is expected to be stronger in the second half with Australian wheat increasingly more competitive globally,” Mr Davis said.

“Overall we remain focused on organic growth opportunities arising within our continuing businesses, while looking at a number of potential investment and acquisition options to build more sustainable earnings for the benefit of shareholders,” Mr Davis added.

Mr Davis added that the company would continue to grow in the agricultural sector and invest in opportunities which meet the company’s financial criteria, and were complementary to existing operations.

The board did not declare an interim dividend.

At 1022 AEST, AWB shares were down 2c to 98c.

GrainCorp Limited (GNC) said it has reduced the average freight rate per tonne by 2% across the 197 GrainCorp sites served by rail for the 2010/11 harvest. The company said for more than 100 sites, it has reduced rail rates by an average of $2.40 per tonne, or over 6%.

CEO, Ian Wilton, said the road rates would be subject to variation if the price of fuel increases above the company’s forward estimates, or if demand for trucks outstrips supply at critical times.

Mr Wilton also said the company would continue the practice which started last year of bidding site-based, rather than ‘at-port’, prices to growers at its sites.

“To arrive at our site-based prices, we will be using our own freight rates,” he said. “GrainCorp will not be using the Grain Trade Australia (GTA) location differentials. These have traditionally been used to deduct a ‘freight’ component from port prices.

Mr Wilton said the company believes the site-based pricing would help resolve the lack of clarity about the way location differentials are used.

GrainCorp also hopes that growers would see the reduction in rail rates, their early release and the clarity of the rates compared to the use of location differentials, as a positive signal.

As at 1013 AEST, Graincorp shares were up 6c to $5.37.

Elders Limited (ELD) posted an underlying profit of $1.1 million for the six to 31 March 2010, against a loss of $21.8 million in the previous corresponding period. However, the beleaguered rural services company reported a post-tax loss, including one-offs, of $165.9 million for the six months, still better than the $328.8 million in the prior corresponding period.

The $166 million loss came on the back of the results of the Forestry Asset Review and the writedown of the value of Elders’ shareholding in Forest Enterprises Australia, the company said.

Chief executive, Malcolm Jackman, was upbeat over the result, saying that the company’s turnaround plans were gaining momentum.

"While the headline results point to the impact of lower prices, the key performance measures show Elders is performing better," Mr Jackman said.

"Each of our operating businesses has made progress in our target areas of margin, cash generation and costs."

Looking at the results, Elders said underlying EBIT was $12.6 million, down from $13.2 million in the previous corresponding period.

Elders was buoyant however, saying this was despite $5 million less coming in from its meat and livestock division, price falls of between 30% and 40%, and a $9 million hit from restructured insurance.

Looking ahead, Elders said it expects further improvement in the second half of the financial year.

”While season breaking rain is yet to occur in Western Australia, the conditions elsewhere in Australia are distinctly positive,” Elders said.

”Accordingly, the company anticipates a substantial lift in its earnings in the second half, given suitable rainfall in Western Australia and suitable market conditions.”

The company also said that gearing was 36%, down from 128% in the previous corresponding period.

Elders shares closed Friday at $1.04 each.

Elders Limited (ELD) said the outcomes of a review have resulted in total balance sheet write downs and provisions of $133.1 million to forestry asset values and a reduction in earnings guidance for underlying profit by $4.3 million after tax for FY10. The company made the announcement following a Review of Forestry Assets it initiated to provide an examination of the implications for asset values arising from recent forestry sector developments and the anticipated receipt of the yield forecast reports.

Elders said the review has confirmed the company’s current property values across the plantation estate, with the exception of Central Queensland, which would be subject to a material writedown.

“Forecast yields from Central Queensland and Esperance have been reduced materially with consequent writedown to accrued income attributed to these areas,” the company said.

“Yields and property values in other regions (which include Albany, the Green Triangle, Bunbury, Kununurra, Tasmania, and North Queensland) are unaffected.”

Elders had previously advised that the Central Queensland pulpwood plantation has been affected by fungal disease and are unlikely to yield a commercial return. The company said is proposed that the land now be cleared and sold.

Elders said yields are now forecast to be lower than expected in Esperance due to the impact of lower than expected rainfall.

CEO, Malcolm Jackman, said the financial impact of the results in Central Queensland and Esperance is extremely disappointing.

However, Mr Jackman did say the company’s long-term cash flow expectations from Elders Forestry, remain positive, notwithstanding the revision to yield estimates arising from Central Queensland and Esperance.

“We are continuing to experience strong demand for the certified woodchip from plantations and volumes are anticipated to increase from approximately 400,000 to approximately 2.5 million green metric tonnes per annum in the coming 5 years,” he said.

“The cash flow benefits of this in the near term will be supplemented by the inflow of approximately $40 million over the period to 2012 as we divest plantation property that we no longer require.”

As at 1144 AEST, Elders shares were down 6c to $1.135.

Woolworths Limited (WOW) reported a 4.7% increase in third quarter sales to $12.9 billion compared to the same period last year. The company revised its sales growth guidance for the year downwards to between 3% and 6% due to greater than anticipated impact on sales of low food and liquor inflation and the cycling of the prior year stimulus.

Woolworths said, excluding petrol, sales rose 3.8% to $11.5 billion in the same period.

CEO, Michael Luscombe, said the company’s supermarkets achieved solid sales whilst experiencing no inflation in Australia for the quarter and deflation in New Zealand of 0.5% for the quarter.

“Our General Merchandise and Hotel businesses were impacted by the cycling of the Australian Government’s stimulus packages in the prior year,” Mr Luscombe said.

“Due to our strong customer focus, we were very well positioned to benefit from those payments. Consumer spending has tightened in the quarter reflecting consumer concerns about further interest rate hikes and higher petrol prices than last year.”

Woolworths said Australian Food and Liquor sales increased 3.8% to $8.8 billion, while the Supermarket division as a whole (including New Zealand and petrol) saw a 4.6% rise in sales to $11.2 billion.

Petrol sales for the third quarter, including Woolworths/Caltex Alliance sites, increased by 12.5% to $1.4 billion, reflecting higher petrol prices compared to last year.

The company said BIG W sales declined by 3.7% due to the cycling of the prior year Government stimulus packages with sales in the third quarter last year increasing 9%.

Meanwhile Consumer Electronics sales fell 2.4% and Hotel sales declined by 1.1% in the quarter.

Woolworths said year to date sales growth is 5.3%, which is within previous guidance.

“Sales in the final quarter of the prior year benefited significantly from stimulus payments together with lower interest rates and petrol prices,” the company said.

“The sales for the final quarter of the current year are expected to be impacted significantly by cycling these conditions. In addition, current levels of food and liquor inflation are significantly lower than those historically experienced and this is expected to continue in the final quarter.”

Woolworths reaffirmed net profit after tax guidance for FY10 to be in the range of 8% to 11%.

As at 1051 AEST, Woolworths shares were down 8c to $26.83.

A range of analysts continued to shy away from endorsing Foster's Group Limited (FGL) saying that a softer beer market would compound problems already seen in the group’s wine division.

Citigroup and GSJBW both listed the beverage maker a SELL, with a price target of $5.00 and $5.80 respectively.

”In the absence of M&A activity, we believe FGL will continue to underperform the broader market,” GSJBW said in its morning stock report.

Meanwhile UBS and Credit Suisse were a little more upbeat, retaining a NEUTRAL recommendation for the stock.

UBS expressed caution on the alcohol sector as a whole, suggesting the Henry Tax Review and upcoming budget could see a hike in taxes on alcohol.

Wesfarmers Limited (WES) reported a 5.9% drop in coal production at its flagship Curragh operation to 2,160,000 tonnes during the March quarter compared to the previous quarter. The company said metallurgical coal production decreased by 12% due primarily to seasonal wet weather, while steaming coal production was 13.6% higher than the previous quarter due to higher contracted demand.

Wesfarmers said coal production at its Premier mine was down 2.9% to 670,000 tonnes compared to the December quarter due to reduced demand from Verve Energy.

Wesfarmer’s share of coal production for the quarter at the Bengalla mine dropped 14.5% to 491,000 tonnes, which the company said was due to operating in a less productive section of the mining sequence.

The company said works are underway for the construction of Curragh’s second coal handling and preparation plant. On 10 November 2009 approval for the expansion of the Curragh mine up to 8.5 million tonnes per annum of export metallurgical was granted.

As at 1410 AEST, Wesfarmers shares were down 8c to $30.01.