Foster's Accounting Assignment

I. EXECUTIVE SUMMARY.

Founded in 1888, Foster's group is the result of a long history of amalgamations. Nowadays, regarded as a premium global multi-beverages company, Foster's group possesses three main operating arms: Beringer Blass Wine Estate, Carlton and United Beverages, Foster's Brewing International. The group delivers premium branded beers, wine spirits and entertainment products. With US$5.2 billion in total operating revenue, Foster's group's operates in Australia, New Zealand, China, California, Italy, Chile, Vietnam, India and Fiji. Besides, its products are sold in over 150 countries around the world.

The report has analyzed the financial performance and financial stability of Foster's Group over a three years period that is from 2002 to 2004 included.

The Ratio Analysis technique was used to conduct the report. Therefore, comparison with industry averages and Coca Cola Amatil supplemented the analysis to complement the results.

In 2002, it was found that profitability had increased significantly compared to 2001, this was mainly due to Foster's group policy in expending its distribution and sales worldwide and Forster's European partnership which increased its income.

However, 2003 showed smaller profitability than 2002 mainly due to a non profitable foreign exchange rate, tough competition in California, adverse trading conditions in the US and the impact of global events restricting travels, tourism and leisure activities (Swan, 2003: 5). Foster's group did however generate greater amount of operating cash flows, and made a considerable amount of acquisitions.

In 2004, Profitability ratios did however increase but that was due to the selling off of ALH (Australia Leisure Hospitality) that generated $1.5 billion, "Excluding the impact of significant items, net profit after tax was $469.4 million, a decrease of 17.4% over the previous year's result" (Foster's Audit, 2004:61).

On the three year basis, when compared to the industry averages, the stability ratios are actually lower, but when they are compared to Coca Cola Amatil the ratios are actually similar and even a bit higher. Due to the accumulation of consistent profits over the years, both companies do not need as much financial leverage as other companies would, which reflects the stability of the company. In fact, those companies rely more on equity than debt to generate their assets.

Overall, Foster's group is a relatively stable and performing enterprise. The results show that Foster's performance and stability have moved in accordance to outside world events. However, the company continues to maintain its position as a leading group in the beverages industry.

II. QUALITY, SCOPE, USEFULNESS,FORMAT AND READABILITY OF THE MOST RECENT ANNUAL REPORT.

The chairman's report for 2004 begins with recognition of the work contributed by the outgoing President, Ted Kunkel and the appointment of the new CEO, Trevor O'Hoy.. Useful data such as the NPAT and EBIT values are clearly stated. The difficult conditions in the global wine market are briefly mentioned. The report also highlights the strategy adopted by Foster's on focusing on core business activities by selling of non-core businesses such as Lensworth and ALH. Three major areas where the Foster's group focuses on are (i) Foster Lager as a global brand, (ii) CUB as a regional multi-beverage industry and (iii) the global wine business. The chairman's report is short, precise and to the point. The CEO's report has a lot of scope and good readability since it clearly defines the priorities of the company and differentiates the three major areas of focus by highlighting the importance of sustainable growth, in the case of the wine industry, and building momentum and maximizing potential, in the case of CUB and Foster's Lager respectively. The concise annual report mentions the key competitive drives of the company as Product, Brand Equity, and Distribution. Separate and independent reports of the three main groups, CUB, Foster's Brewing International, and Beringer Blass Wine Estates are provided in the annual report. The financial highlights mentioning the net sales revenue and EBITA along with the percentage change are tabulated in all the three individual reports. This gives a picture of the improvement in financial performance of the groups in the year 2004. Foster's group is the only Australian company represented on the International Centre for Alcohol Policies ( ICAP ) and this shows the company's recognition of social responsibility. Moreover, the Foster's Group made direct as well as indirect contributions to many not-for-profit and charitable organizations.

III. ANALYSIS THE PUBLISHED FINANCIAL STATEMENTS FOR THE LAST THREE YEARS.

* PART A: Financial analysis

Financial ratios provide the best way to judge how well a company is performing. In evaluating the company, it is imperative to use both time series comparisons. Both will be used in the following analysis.

Gross profit is the difference between net sales and the cost price of the goods that have been sold for the period. Relating this to the net sales revenue produces the gross profit margin. The gross profit margin ratio is a financial ratio used to assess profitability. The gross profit margin for Fosters Group was 49.71 % in 2002. However, in 2003 the gross profit margin declined to 48.11 % mainly due to the negative impact of the growing Australian dollar against the US dollar and the high competition in California in the wine industry. These together decreased the net profit. The gross profit remained around 48% in 2004, because the conditions in the wine market wine continued to be extremely difficult. Compared to Coca Cola the gross profit margin of Foster's is slightly higher over the three years, showing that it is fairly profitable.

Net Profit Margin is another profitability ratio. This ratio is an indication of how effective a company is at cost control. The higher the net profit margin is, the more effective the company is at converting revenue into actual profit. The net profit margin is a good way of comparing companies in the same industry, since such companies are generally subject to similar business conditions. Foster's net profit margin was quite a bit higher then Coca Cola over the three years, which shows that the company is very successful at converting revenue into profits. Foster's net profit