Foster’s to close brewery in Western Australia

It was brewery with a great view. From the brewhouse you could see the Pacific Ocean rolling gently against the shore. Soon no more. Foster’s has decided to economise while making the most of Australia’s efficient transport system.

In September, the Foster’s Group will cease beer production at its North Fremantle brewery in Perth, Western Australia, and relocate production to its other Australian breweries. The North Fremantle brewery is housed in a 1930s art deco building overlooking Fremantle Beach, formerly home to the Ford Motor Company. The site was transformed into the home of Matilda Bay brewery in 1989, a boutique brewery bought by Foster’s.

According to local media reports, about 60 production staff will lose their jobs. Administration, marketing and support staff for Foster’s in Western Australia will not be affected by the decision.

The North Fremantle brewery produces about one third of Foster’s beer volumes in Western Australia, including Victoria Bitter, Carlton Draught, Carlton mid-strength and some of the Matilda Bay portfolio. “This decision is a result of an Australian production review to improve cost and capital efficiency, operational flexibility and health, safety and environmental performance,” Foster’s said in a statement.

Foster’s claimed that the North Fremantle site was no longer economically viable. That’s not hard to believe given that beer production in Western Australia involved a lot of shunting to and fro of goods and final product. Although transportation costs seem not to be as prohibitively high in Australia as elsewhere, getting ingredients to Western Australia from, let’s say Melbourne, still involves a trip of more than 3,000 km. Add to that the fact that Western Australia is a relatively small market and you understand why there comes a time when Foster’s controllers can no longer be disputed that brewing the beers in other parts of the country makes more economic sense.

The production formerly undertaken at North Fremantle will be shifted to the Yatala brewery in Queensland, the Abbotsford brewery in Melbourne, the Cascade brewery in Tasmania and the Matilda Bay Garage in Melbourne.

Earlier this year, Foster’s announced the sale of its former Kent Brewery site in Sydney to a property developer for AUD 208 million. When the brewery was closed in 2005, the site was valued at AUD 150 million. So Foster’s patience and trust in the booming Sydney property market paid off. Two years later Foster’s could reap a bonus of 30 percent.

The 5.8-hectare site on the edge of Sydney’s central business district has been approved for residential, office, retail, entertainment and dining use. It once housed the Tooth’s brewery, which has since been incorporated into Foster’s. With the exception of a heritage chimney and gate, all the old brewery buildings will be knocked down.

Redevelopment of the site will include more than 1,600 residential apartments and more than 90,000 square metres of commercial and retail space.

By all accounts the developer expects the site to have an end value of AUD 2 billion. Construction is expected to start in early 2008.

Australia - Coca Cola Amatil’s investors want more

Coca-Cola Amatil’s (CCA) upgraded first-half earnings forecast failed to impress investors who began to offload stock immediately, stripping more than AUD 210 million of CCA’s market value. Read on

Within hours on 27 June, CCA’s shares had dropped 23 cents or 2.48 percent to AUD 9.04, despite a company forecast of 12 percent growth in earnings before interest and tax (EBIT) for the first half of 2007.

It is a funny old world. What does it take for a company to win investor support if not increased earnings? Is 12 percent too little? Or how greedy have the markets become?

According to Australian news reports, it appeared that expectations had grown faster than Coca Cola Amatil’s own earnings forecast.

In its announcement, CCA said strong trading conditions in Australia and New Zealand had combined with continuing improvements in Indonesia to support an earnings upgrade. The company was enjoying good trading conditions across most markets, it said, and the key priority for the business was the recovery of commodity-driven price rises in products.

Coca-Cola Amatil said the momentum created by its Australian business in the second half of 2006 had continued, maintaining solid price per unit case realisation. Volumes had also been maintained in line with 2006, which the company said was a strong outcome after the launch of Coke Zero a year ago.

So what made the investors dump CCA’s shares? To all appearances it was CCA’s failure to boost volumes significantly that became a source of disappointment for investors.

CCA’s Chief Executive, Terry Davis, maintained a second-half earnings guidance of ‘high single digit’ growth as commodity-price increase squeezes profits. He is currently overseeing expansion of the group’s beer sales through the joint venture with SABMiller. Rumour has it that CCA’s planned expansion of warehouse facilities at Eastern Creek in western Sydney includes a site for a green-field brewery.