Foster’s Brewing Group Limited Annual Report 1997 · • Group proﬁt before interest and tax up 17.4% to $426.8 million. • Fifth consecutive year of double digit proﬁt growth

Foster’s Brewing Group Limited Annual Report 1997

'97 Fosters Front Cover 11/6/99 2:23 PM Page 1

Contents

HighlightsChairman’s CommentFoster’s Brewing Group Around The WorldReport from the President and Chief Executive OfficerPremium BrandsResponsivenessInnovationTeamworkFinancial CommentaryFoster’s Brewing Group Business PortfolioReview of OperationsSponsorship and CommunityBoard of DirectorsCorporate GovernanceShareholder InformationFive Year SummaryExecutives and Foster’s Brewing Group ContactsDirectors’ Report, Financial Statements and Details of Shareholders

23461012141618202234353638394041

inside front Cov 11/6/99 2:25 PM Page 1

Foster’s Brewing Group is a global beer and wine company dedicated to deliveringpremium branded products to consumers in more than 120 countries around the world.

CARLTON AND UNITEDBREWERIES

MILDARA BLASS

FOSTER’S ASIA

MOLSON BREWERIES INNTREPRENEUR PUB COMPANY

FOSTER’S INTERNATIONAL

FOSTER’SBREWING GROUP

LIMITED

11781 Foster’s Text ours 8/7/99 6:59 PM Page 1

2

Highlights

• Group profit before interest and tax up 17.4%

to $426.8 million.

• Fifth consecutive year of double digit profit growth

for Carlton and United Breweries – up 11.5%.

National market share 55.2%, with increases in

all states: record share level in New South Wales,

Queensland, Western Australia and South Australia.

• Mildara Blass increased underlying operating profit

by 26.3%. Strong growth in volumes: 29.6% domestic,

25.1% export.

• Volume of beer sold by Foster’s China up 34%

to 1,183,000 hectolitres.

• Inntrepreneur Pub Company won British Government

approval to continue tied beer supply arrangements

beyond March, 1998.

• Arrangements concluded for the broad divestment by

BHP of its Foster’s Brewing Group shareholding.

• After year’s end, shareholders approved buy-back

and cancellation of 13% of Foster’s Brewing Group

shares from Asahi.


Chairman’s Comment

John Ralph Chairman Foster’s Brewing Group

Foster’s Brewing Group consolidated its position in both the beer and wineindustries during the year. The Boardwas particularly delighted with theperformance of Carlton and UnitedBreweries in achieving double digitprofit growth for the fifth consecutiveyear. The company’s wine division,Mildara Blass, continued to grow itsshare of domestic and export markets,while successfully integrating RothburyWines into its organisation andexpanding its international coveragewith new winemaking ventures in Chileand California.

Investors responded positively duringthe year to the significant improvementin the underlying performance of theGroup. While net profit after tax waslower than in the previous year, this wasnot unexpected because the accumulatedtax losses in Australia were fully utilised in the year. This had the effect of increasing tax expense and loweringprofit but there is an offsetting benefit to shareholders in that the six cents per share final dividend will be 50%franked. It is expected that futuredividends, commencing with the interimdividend in March next year, will befully franked.

The underlying operating results of Foster’s Brewing Group (FBG) were verypleasing. However, the year’s result wasaffected after absorbing FBG’s share ofthe cost of settling the dispute betweenMolson Breweries and Coors BrewingCompany and restructuring withinMolson Breweries itself.

The year closed on a very positive noteas shareholders voted to invest $625million to buy back FBG shares frominterests associated with Asahi Brewing.The buy-back enhanced earnings pershare, while the associatedarrangements, which saw both Asahiand BHP announce their exit from thecompany register, resulted in a broaderand more diverse shareholder base forFoster’s Brewing Group.

The new shareholders comprise local and international investors whoexhibited confidence in the company by buying the FBG shares sold by BHPin June. The shareholder base isexpected to be increased further by BHP shareholders who take up theopportunity to buy FBG shares later

this year. As well, many Foster’s BrewingGroup employees have expressed theircommitment to the company by buyingshares through the Employee Share Planin recent years.

The company is entering a new era, with a wide spread of shareholders, a sound balance sheet and a solidoperating base from which to embarkon a path of profitable growth. The achievements of the past severalyears, which brought the Group to itscurrent strong position, allow us to lookforward with confidence to the future.The Board and management of Foster’s Brewing Group are dedicated to rewarding the shareholders who have supported the company by their investment.

John T. RalphChairman of DirectorsFoster’s Brewing Group

3


Every day millions of people

around the world enjoy

Foster’s Brewing Group brands.

Britain

Foster’s

Foster’s Ice

Wolf Blass

Jamiesons Run

subzero

Foster’s

Wolf Blass

Jamiesons Run

subzero

Foster’s

Foster’s Ice

Princess

Shanghai

Largo

Foster’s

Foster’s

Foster’s Ice

Wolf BlassVictoria Bitter

Carlton Cold

Foster’s

Foster’s LightIce

Wolf Blass

Yellowglen

Yarra Ridge

subzero

4

Europe Middle East South East Asia North East Asia Australasia


over the world recogniseFoster’s Brewing Groupbrands as a guarantee ofquality and enjoyment. To provide maximumsupport for our brands indiverse global markets, we adapt our expertise andknowledge to the countries in which we operate: from dedicated brewers

translating local product to superior beer in China, to Mildara Blass winemakersapplying their skills inCalifornia and Chile, to our Dubai sales andmarketing team at work in Africa, the Middle Eastand Central Asia. We workwith our brewing partners in five European countries

and continuously target new markets for Foster’s, the world’s third mostwidely-distributed beer,enjoyed in more than 120countries. Premium brands,targeted marketing, andprudent brewing andwinemaking investments: the results are in the glass, all over the world.

Premium brands travel withtheir own passport to success.Whether it is the company’sflagship brand, Foster’s,pouring out of the taps of London pubs at the rate of 1.3 million pints a day, or a Wolf Blass chardonnayshining in a connoisseur’sglass in a San Francisco wine bar, consumers all

Foster’s

Molson Canadian

Wolf Blass

Black Opal

Foster’s

5

North America South America


The events of the past year, including the broadening and strengthening of our share register following the departureof BHP and Asahi as major shareholders,have given the management of Foster’s Brewing Group, across all of its businesses, a tighter, clearer focus onwhat the company is about and where itneeds to go. Our identity is no longer inany doubt – we are a premium-brandbeer and wine company, with highquality assets, an impeccable cash flowand a solid set of core competencies.Beer is our heritage and the focus ofmuch of our expertise, but it is not

our limitation, as evidenced by oursuccessful integration of Mildara Blass,and the development of synergisticbusinesses such as the Australian Leisure and Hospitality hotels division.

For instance, it is not beer as a productwhich drives the success of Carlton andUnited Breweries. The highest levels ofbrewing expertise, technologicaladvancement and marketing skills havebeen, and always will be, intrinsic to the CUB success story. But CUB’sgreatest strength lies in its sense ofidentity and vision. The constant strivingto live up to the Lead Enterprise

philosophy it has adopted naturallytranslates into superior performance and results. CUB’s ability to identify and adopt a vision and set of values,and then adapt them to the rigorous andcompetitive Australian brewing industry,is an inspiring model.

CUB’s performance during the past year continued the high standards thebrewing division has set in recent years.The Australian beer market grewslightly, by 1%, for the first time inmany years. CUB, which pushed its own market share to 55.2% and launched three new brands to

6

Report from the President and Chief Executive Officer

Ted Kunkel President & CEO Foster’s Brewing Group

In a landmark year for the company,Foster’s Brewing Group emerged more committedthan ever to driving shareholder value through the successful combination of premium brands,precisely-targeted marketing strategies and prudentinvestments. These are the fundamentals which willdrive a cohesive Foster’s Brewing Group forward in the years ahead.


7

supplement its existing market-leadingportfolio, can take some credit forcontributing to overall growth. Strongcompetition had a negligible impact onCUB brands, which continue to lead in the full-strength, low alcohol andpremium markets, confirming the faithwhich consumers have in high-quality,well-known CUB beer brands. Newproducts such as Carlton Midstrength,targeted precisely at an unexploitedmarket segment, add to the publicawareness of a brewing company whichunderstands and works to satisfy itsconsumers’ desires.

A zero accident philosophy is intrinsic to CUB’s operations, as well as those of every other Foster’s Brewing Groupdivision. The philosophy is beingprogressively pursued and expanded, in a manner which reflects the employeebuy-in approach the company seeks totake with all issues of employee welfare.

Strong and successful businesses likeCUB and Mildara Blass are importantelements of Foster’s Brewing Group and,while we face a new era with a morecohesive outlook, we will also respectthe distinctive features which make them successful. We have encouragedjudicious expenditure of capital withinCUB and Mildara Blass, as an investmentin the future of the operations.

Our wine business has delivered on ourplans and expectations. Mildara Blasshas performed strongly, generating a result which is exactly on target, and which confirms our judgement that Mildara Blass was the rightinvestment for this company to make.We chose a well-managed, high-returnbusiness, capable of integrating keyacquisitions from which we could

readily derive shareholder value, such as Rothbury Wines. With the addition of Cellarmaster, we are looking at abusiness which will contribute to ourbottom line and enhance earnings-per-share immediately.

Mildara Blass’s commitment to premiumbrands and excellence in wine-makinghas not only delivered results for theyear, but makes the business a perfect fit with the Foster’s Brewing Groupphilosophy. Mildara’s management hasshown itself to have the wide-angle view of its business which is a necessityfor a successful global operation. From establishing massive new vineyardplantings to ensure grape supply for the future, to market-responsive brandmanagement, to pursuing offshoregrowth opportunities in Chile andCalifornia, Mildara Blass has displayedits determination to stay among theworld’s top ten wine producers. In addition, the international wine clubopportunities presented by Cellarmasterare significant.

Today’s Foster’s Brewing Group is verymuch a global company. The prospectsfor future growth outside Australia are excellent and, while we continue to carry our flagship brand into distantmarkets, our best opportunities lie in our own Asia-Pacific region. We haveestablished our foundation in China, and built a knowledge and experiencebase which will serve us well as we movetowards completing our strategic planfor the region. Emerging Asian markets,with good beer consumption potentialand growing economies, are the focus of our $200 million strategy. Withapproximately $120 million invested in China, Foster’s Asia is now building a $22 million brewery near Mumbai

(Bombay) in India and is considering aventure in Vietnam. The prudent level of these investments, taking into accountthe strength of our balance sheet as wellas the potential of these markets, ensures that we are able to meet thespecial challenges of the Asian operatingenvironment within an acceptable risk profile.

The potential for growth in Asia isreflected this year in the beer volumessold by Foster’s China, a 34% increaseto 1,183,000 hectolitres. The challengesof the region, and China in particular,are just as clearly reflected in a higherEBIT loss for 1996/97. The perennialissue is adequate beer margins, whichare currently difficult to achieve in thecompetitive and price-sensitive Chinesemarket. However, change is inevitable in the world’s fastest-growing beermarket and Foster’s China has laid thegroundwork for the future by raisingvolumes, reinvesting in capacityupgrades, launching premium brandsand applying core competencies such asmarketing strategy, brewing technologyand logistics in a culturally-sensitivemanner.

The past year has also been achallenging one for Molson Breweries,as the Canadian market leader continuesa period of structural change and brandrepositioning. Foster’s Brewing Group’s40% interest in Molson has often been the subject of speculation duringthe year, but our commitment to theMolson business remains firm. Premium brands, segment-targetedmarketing in a low-growth beer marketand establishment of a regional networkare all elements of the Molson growthstrategy which are familiar to, and well-regarded by, Foster’s Brewing Group.


associated with Asahi Brewing. The netresult of these arrangements is a muchstronger and more balanced shareregister, and the return of any controlpremium to all shareholders. Foster’sBrewing Group can truly focus on theway forward with confidence, in theknowledge that the control of thecompany, vested in numerousshareholders, cannot change hands as readily as it might have in the past.This past year has been a watershedyear for Foster’s Brewing Group. The path forward for the company is well-signposted, thanks to theperformance of our beer and winebusinesses, the future opportunities ofour Asian strategy and the restructuringand refocusing of our other businesses.During the year, we have reviewed andrefined our strategies for the future toensure that they are firmly based on the fundamentals of premium brands,incisive marketing strategies, prudentinvestment and the generation of optimal shareholder value. My management team believes that Foster’s Brewing Group has nowdelivered on what we promised severalyears ago, when our horizons wererestricted and our challenges far morecomplex. Today we are facing a new erawith renewed vigour and confidence,and a determination to make the wholethat is Foster’s Brewing Group anadmirable reflection of the corecompetencies and successful strategies of the company’s business parts.

E.T. (Ted) KunkelPresident & Chief Executive OfficerFoster’s Brewing Group

8

Report from the President and Chief Executive Officer

In Molson Breweries’ case, a number of abnormal charges have reduced itscontribution to FBG profit, but have not diminished our faith in what hasconsistently been a high-return business.Many of the events which reducedMolson’s earnings this year, such as thesettlement of the Coors claim and theclosure of the Winnipeg brewery,simultaneously bode well for thebusiness’s future, clearing the way formore efficient operations and strongerand more meaningful alliances.

The premium brand strategy whichguides every Foster’s Brewing Groupbusiness has a special significance in thework of Foster’s International. In its firstfull year of operation, this new businesspushed the company’s global iconbrand, Foster’s, into increasedprominence throughout the world,achieving record sales. Now sold inmore than 120 countries, the growth ofour premium brand in the world’s mostcompetitive, established beer markets –Britain, Europe, the US and Asia – isspectacular, supplemented by Foster’sInternational’s pursuit of new markets in Africa, South America, the MiddleEast and the Central Asian republics. The brand became number one inLondon and moved up two positions inthe US to number six among importedbrands, the fastest-growing segment ofthe market. This strong growth wasbacked up with a number of significantnew sponsorship deals, including anupgrading of Grand Prix sponsorship,with Foster’s becoming an OfficialSponsor worldwide. Foster’s Internationalis laying the groundwork to return profitto the company in the near-term, withthe establishment of its global marketingoperations and a guaranteed escalatingroyalty stream from Foster’s sales in Britain and Europe.

The British-based Inntrepreneur PubCompany is similarly engaged in aprogram of improving the business and laying the groundwork for futuregrowth. During the year, the BritishGovernment ruled that Inntrepreneurwould not have to relinquish tied beersupply arrangements with its pub estateafter March, 1998, as previouslyrequired. This decision placesInntrepreneur on an equal competitivefooting with other British independentpub companies. The company hasalready taken steps to capitalise on itsnew position via an innovative programof retailer support called RetailLink.

One of the characteristics which hasreinstated investor confidence in Foster’sBrewing Group in recent years has beenthe ability to consistently generate high cash flow from its businesses. Key businesses such as CUB are majorcontributors, but the company has alsoreaped substantial cash returns from theorderly disposal of non-core assets by the former EFG, now renamedLensworth. Since June 30, 1993, the sale of these assets has realised $940 million. This strategic program has made a critical contribution to ourability to transform Foster’s BrewingGroup into the focused global companyit is today.

It was gratifying to receive recognitionof our new stability and position in thepantheon of top Australian companiesthis year, when institutional investorsexpressed their confidence in Foster’sBrewing Group by wasting no time inacquiring the 31% of our shares sold by BHP in June. This was followed by a further vote of confidence from share-holders after year-end, when theyoverwhelmingly approved the buy-backand cancellation of 13% of thecompany’s shares from interests


Our customersexpect the best –and we deliver

quality,innovation,premiumbrands.


10

“Australian consumers have long demonstrated their loyalty to CUB brands and we are committedto preserving this loyalty. As a dynamic, learning-based Lead Enterprise, we recognise that, in orderto build community respect and enhance value for stakeholders, we must continue to deliverproducts which satisfy consumer needs and fulfildrinkers’ expectations.”Nuno D’Aquino, Managing Director, Carlton and United Breweries

Crown Lager continues to dominate thepremium beer marketin Australia. Salesgrowth of 20% during 1996/97 reconfirmed thebrand’s numberone position.

Guaranteedquality, flavour andvalue: attributeswhich explain thecontinuing successof Australia’s mostpopular beer,Victoria Bitter.

Centre Spreads 8/7/99 8:42 PM Page 2

111

“Mildara Blass is a multibrandwine business operating at thepremium end of the market.In volume terms, it is one ofthe 30 largest producers in the world, but in profit termsMildara ranks in the top ten.”Ray King, Managing Director, Mildara Blass

“The Foster’s brand is a winner in both the American and European markets so ourassociation with anotherglobal winner, Grand Prixracing, sets up what will be a popular internationalcombination for many years to come.”Ted Kunkel, President & CEO, Foster’s Brewing Group

Molson Canadian is the number one selling beer in Ontario, the largest beerconsumption market in Canada.

“Foster’s is one of the world’s fastest-growing beer brands.In the US, Foster’s climbed two places to number six in thehigh-growth imported beer market, with the help of our‘How to Speak Australian’ advertising campaign, whichhas achieved a stunning 90% consumer awareness.”Rick Scully, Senior VP, Foster’s International

Premium Brands


“An innovative company never stopsinnovating. Carlton Midstrength Bitter is aprime example of our ability to identify amarket segment in which we can grow,and create a great-tasting product to fulfila consumer need.”

Ted Kunkel, President & CEO, Foster’s Brewing Group

12

Foster’s Brewing Group’s ability to respond to consumer demands withthe right products places the companyat the forefront of beer and wineproduction, sales and marketing worldwide.

“Yellow, a new member of the high quality Yellowglen range, fills a gapwe identified in the premium sparkling wine market. Our instinctsand research were right – since its launch in late 1996, Yellow hascaptured 15% of the market.” Ray King, Managing Director, Mildara Blass

Reschs Smooth Black Ale is CUB’s newest

old beer. With its dense creamy head, rich

mid palate and chocolate mocha notes, this

ale was developed to respond to renewed

interest in the traditional black beer

segment among younger drinkers.

Ted Kunkel, President & CEO , Foster’s Brewing Group

Responsiveness


13

“Inntrepreneur’s objective isto act as a positive forcein the UK beer market byusing our purchasingpower to offer newfinancial benefits andsupport to our retailers,and ultimately to broadenconsumer choice througha wider range of beer.”

Mike FosterChief Executive OfficerInntrepreneur Pub Company

“One of our biggest challenges in China has been establishing cost-efficient sales anddistribution networks. We have worked hard toovercome the many and varied challenges ofChina, and we are now in a much improvedposition. We have taken our skills andtechniques to China, and China has taught ussome new ways of getting our beer toconsumers.” Jim King, Managing Director, Foster’s Asia

Brewed at Foster’s TianjinBrewery, Whiz is a newbrand aimed at China’saspirational youngprofessionals. The productquickly captured 7% of theTianjin market, supportingsales of Foster’s Largo brand, which has another 12.8% of the market.


14

“Their fresh approach to the art ofwinemaking, combined with theirunderstanding of the latest technology,have made Australian winemakerswelcome visitors at vineyards all overthe world. So naturally we haveappointed two Australians to our newventures in Chile and California.”Ray King, Managing Director, Mildara Blass

Australians are eating out more, and wantcomfortable, informaloptions. AustralianLeisure and Hospitalityinvested $10 million inrefurbishing pubs duringthe year to create freshnew settings and conceptsfor family dining.


15

“Draft beer is no longer just a pub specialty: thenew Molson CanadianHome Draft Unitprovides drinkers with a21-day supply of draftbeer straight out ofthe fridge.”John Barnett, Chief Executive Officer,

Molson Breweries

“We are always looking for ways to lift the performanceof the Foster’s brand. That may mean exploring a newmarket, or taking a fresh look at an existing market.After 20 years of successful exports to the MiddleEast, we recently launched Foster’s in an Australian-produced 500ml can – an innovation which gives us anextra edge in this competitive international market.”Rick Scully, Senior VP, Foster’s International

“CUB’s ability to harness knowledge and apply it is critical to our success. Carlton Cold is a stunning example of this ability in practice. As Australia’s first ever cold filtered beer, Carlton Cold holds a leading position in the market and the launch last summer of Carlton Cold in unbreakable PET bottles is evidence that we will always push hard to break new ground.”Nuno D’Aquino, Managing Director, Carlton and United Breweries

Innovation


16

Teamwork at Carlton and UnitedBreweries is symbolised by thefamous and much-loved CUBClydesdales, who will soon be onthe move to their new home atHomebush Bay in Sydney.

“The teams at the Tianjin and ShanghaiFoster’s Breweries had a very hecticsummer, as demand for our brands soaredin both markets. A huge effort at ShanghaiFoster’s ensured that the $28 millionupgrade to 1.5 million hectolitres wascompleted on budget and in time forsummer. A fantastic effort.”Jim King, Managing Director, Foster’s Asia

“The Foster’s treasury team raisedUS$500 million in a UnitedStates Bond issue, securing longterm core borrowings for thecompany at competitive interestrates. Input from all parts of theCompany was integral to thesuccess of FBG’s entry into thisdemanding market.”

Ted Kunkel,President & CEO,Foster’s Brewing Group

Teamwork


Jamiesons Run,one of Australia’sbest recognisedinternationalbrands, celebratedits tenth anniversarythis year. Industrycommentators paid tribute to the masterful teamwork whichcreated a top-classstayer.

17

At the Yatala Brewery inQueensland, the successfulcompletion of the MidstrengthBitter project was another job well done for team members, asthe new beer rolled off the line.

“In a market where we must continually strive hard and find new ways to enhance our profitability, it is our ability to work together and share knowledge, ideas and approaches which gives this company its competitive edge.Teamwork lies at the very core ofthe way we think and work at CUB.”

Nuno D’Aquino, Chief Operating Officer, Carlton and United Breweries


18

In the past year, underlying operatingprofit rose strongly, the orderly sale of non-core assets continued and amajor initiative which would reduce the cost of capital – a share buy-backvalued at $625 million – was proposedto shareholders.

Profit before interest and tax rose by 17.4% to $426.8 million in 1996/97.The company began providing for taxon Australian income when accumulatedtax losses were fully utilised around themiddle of the year. The $47.7 milliontax expense in 1996/97 was an increaseof $39.2 million or 461.2% over1995/96. Consequently, the company’snet profit after tax of $250.5 millionwas $42.8 million or 14.6% lower than in 1995/96.

The return on year end equity (prior to abnormal items) was 9.4% comparedwith 9.7% in 1995/96.

The financial result was also affected by net abnormal charges after tax of$17.8 million primarily associated with the restructuring of the MolsonBreweries business in Canada and the settlement of issues with the CoorsBrewing Company. The net impact of the charges arising from Molson was $43.8 million after tax. The effect ofworking out the company’s non-coreassets continues to be treated as anabnormal item. There was a contributionfrom that source in the year of $15.4 million.

Despite the lower profit after tax, cashflows remained strong. Cash flow fromoperating activities increased by 15.4% to $255.5 million. Dividendpayments increased by 1.6% over1995/96 to $215.8 million.

Capital spending was slightly higher,$195.8 million in 1996/97 compared to $190.0 million in 1995/96.Approximately 63.2% of the spendingwas directed toward enhancing thecompetitiveness of CUB and allowing it to further develop its core operations.The balance was mainly split between the wine division (22.0%) and Foster’s Asia (13.9%).

Cash amounting to $79.2 million wasused for investments, principally theacquisition of Ballarat Brewing ($44.4 million net of cash balancesacquired), completion of the RothburyWines takeover ($20.8 million) andpayment made for dilution of ShanghaiFoster’s Brewery outside equity interests($8.7 million).

Cash proceeds from the sale of non-coreassets and repayments of loans amountedto $301.8 million.

Net debt at the end of the year was$1,134.7 million, a 6.4% increase overa year earlier which was mainlyaccounted for by exchange ratevariations. Net debt was equivalent to 39.2% of shareholder funds at 30 June 1997. Net interest expense in the year was $90.1 million. The average interest rate paid was 6.9%.

The company maintained its investmentgrade credit rating with both Moody’s(Baa1) and Standard and Poors (BBB+)during the year.

During the year, the companyrenegotiated the terms of its bankingfacilities and extended the maturities tobeyond June 2001. At the end of theyear, the company had undrawn creditfacilities of $1,212 million. The averagematurity of company debt was around10 years.

Financial Commentary

The company’s financial goal is to raise returns to shareholders by • raising underlying operating profit • increasing the efficiency of its capital base • reducing the overall cost of capital

Financial Commentary


19

FrankingAt the end of the year, after providingfor tax payable on 1997 Australianincome and after allowing for frankingof the final dividend, there was $62.6 million in franking creditsavailable. In the second half of the year,the company moved into a tax payingposition in Australia. As it is movingrapidly toward full effective tax rates on its Australian income, its capacity to pay franked dividends is rising. The final dividend for 1996/97 will be 50% franked. There are reasonableprospects, based on the current businessand operating outlook, for subsequentdividends to be fully franked.

Risk Management The company is committed to aphilosophy of risk management. Major risk exposures, particularly inregard to property, legal liabilities andhealth and safety are continuallymonitored and contained throughinternal audits, risk managementconsultants and compliance reportingto the Board.

This strategy enables the company to achieve a sound commercial balancebetween self retention of exposures andthe transfer of insurable risks to majorinternational insurers. These practiceshave led to significantly reducedinsurance costs.

The company is exposed to financialrisks associated with interest rate and currency fluctuations which arise in the normal course of its business.Management of these risks is undertakenin accordance with policies approved by the company’s board of directors and are subject to regular reporting to the board. Those risks largely reflectthe currencies in which the company’sassets are denominated which are primarily in Australian dollars, US dollars, Canadian dollars and Sterling.

Accounting Policy ChangesUnder a change to Australianaccounting standards, the company will be required to account for its 50% interest in IPCL on an equity basis in 1997/98 but has elected to doso beginning in 1996/97 by virtue of theClass Order issued by the AustralianSecurities Commission. The change tothe standard requires that the differencebetween the book carrying value of itsinvestment in IPCL and a 50% share ofIPCL’s underlying net assets at thebeginning of 1996/97 is debited toreserves. From 1996/97, the company'sshare of IPCL’s net income will berecorded in the profit and loss statement.

450

400

350

300

250

Foster’s Brewing Group EBIT

1993 1994 1995 1996 1997

Continuing (Excluding Courage in 1993/1995)

($m)

(%)

1993 1994 1995 1996 1997

(Debt/Equity %)

150

100

50

0

Foster’s Brewing Group Gearing(Debt/Equity %)


Carlton and United Breweries Mildara Blass Foster’s Asia

Foster’s Brewing Group Business Portfolio

Carlton and United Breweries is an industryand market leader in the production,marketing, sale and distribution of beer andinnovative alcoholic beverages. CUB’sAustralian Leisure and Hospitality division(ALH) operates pubs, and the Carlton SpecialBeverages business is Australia’s leadingimporter and distributor of internationalbeers. BrewTech, CUB’s technology researchand implementation business, is an innovatorin bio-resource products and global breweryestablishment.

Victoria Bitter, Foster’s LightIce, Carlton Cold,Crown Lager, Foster’s Extra, Foster’s, CascadePremium, Redback, subzero. Key importedbrands include Guinness, Corona, Heinekenand Miller Genuine Draft.

Six Australian and two Fijian breweries,including Abbotsford, Kent, Yatala, Cascade,Matilda Bay and Darwin. Total capacity 13million hectolitres. The ALH total pub estatecontains 127 hotels.

Majority share of Australian beer market(55.2%). Market leader in premium, lowalcohol, full-strength and imported beermarket segments. Produces Australia’s mostpopular beer (VB) and has 60% of the newage beverage market (with subzero). Totalsales for 1996/97 of 9.47 million hectolitres.

At the end of its fifth consecutive year ofdouble digit profit growth, CUB remainshighly motivated to maintain strongprofitability through volume growth, costefficiencies and new investment in the retailbusiness, consistent with its Lead Enterprisephilosophy. The development and launch ofseveral innovative new brands during the yearis an indication of CUB’s determination tofocus on customers and consumers and togrow the beer market by actively identifyingand satisfying unexploited market segments.

3664

Capital employed (period end):$1,979.1 millionRevenue: $1,799.1 million

A top ten profit earner in the global wineindustry, Mildara Blass is a multibrandbusiness involved in the production,marketing and sale of premium winesdestined for domestic and export markets.

Wolf Blass, Yellowglen, Jamiesons Run, BlackOpal, Andrew Garrett, Yarra Ridge, Saltram,Rothbury Estate, Annie’s Lane, St Huberts,Robertsons Well.

A total of 14 operational wineries with sevenin South Australia, six in Victoria, and one inNew South Wales. Collectively they produce atotal vintage capacity of 33.6 million litres.The total area under vine is 2,721 hectares.

Significant share of Australia’s premiumsparkling wine market (around 40%) andaround 20% of Australia’s premiumtablewine market. The United States, Britainand Europe are Mildara Blass’ largestinternational markets, where the popularity ofWolf Blass and Black Opal contributed to a25.1% rise in export volumes for the year.

Mildara Blass has excellent growth horizons.The joint venture agreement in Chile and wineproduction arrangement in California,combined with the further expansion ofwinemaking operations in Australia, willensure that production capabilities keep pacewith Mildara Blass’ pursuit of profit growthopportunities. Growing demand for premiumwines among Australian and internationalconsumers indicates solid prospects fordomestic and export sales in the year ahead.

880

Capital employed (period end):$729.2 millionRevenue: $216.2 million

Established to drive Foster’s Brewing Group’sAsian development strategy, Foster’s Asiabrews, markets and distributes beer in Asianmarkets. Foster’s Asia has three operatingbreweries in China and one under constructionin India. Foster’s Special Beverages marketsand distributes a number of CUB andinternational brands in Hong Kong.

Foster’s, Holsten, Princess, Eazy, Largo, Whiz,Shanghai, Guangming, Power’s.

Three China breweries based in Shanghai,Tianjin and Guangdong, with a total capacityof 3 million hectolitres. The first stage ofconstruction (100,000 hectolitres) of a350,000 hectolitre brewery in Mumbai, Indiais due for completion by early 1998.

Holds 20% share of Tianjin mainstreammarket and 15% of the Shanghai market.Sales of Foster’s increased 25% during thelast year and Foster’s Special Beveragesachieved 20% gains in sales volumes in HongKong. Overall volume increased by 34%during the year.

Foster’s Asia strategy is to establish abrewing business which, in the medium term,will bring new sources of earnings from theprincipal growth market for beer in the world- Asia. Foster’s China has already begun toconsolidate its position in the market withvolume growth and development of a broaderbrand portfolio, sales and distributioninfrastructure and expanded capacity atShanghai Foster’s Brewery. The new breweryunder construction in India and a conditionalagreement in Vietnam confirm the company’sstrong commitment to the region.

1709


Business Activities

Scale – Volume

Major Markets

Outlook/Opportunities

Number of employees

Key Statistics

Key Brands

20


Foster’s International Molson Breweries Inntrepreneur Pub Company

21

Foster’s International is responsible for thestewardship, development and governance ofthe Foster’s brand worldwide. Its activitiesinclude the identification and development ofnew markets, management of internationalbrewing and marketing agreements and thedevelopment of new and existing marketinginitiatives, including global sponsorships.

Foster’s, Foster’s Ice, subzero.

Four regional offices, in Australia, Britain, theUnited States and the Middle East. Foster’sInternational markets and distributes Foster’sbrands in more than 120 countries around theworld. The total volume sold for 1996/97 was6.7 million hectolitres.

In Britain, Fosters’ is the second largest andfastest growing brand. Foster’s has 41% ofthe standard lager market in London andFoster’s Ice is Britain’s top-selling Ice beer.Foster’s is also the leading non-European beerin Germany and is rated number nine acrossEurope. In the United States, Foster’s is nowranked as the sixth largest imported brand.

Foster’s is one of the world’s fastest growingbrands. Foster’s International is committed todeveloping growth markets in Asia, the MiddleEast, Africa and South America, as well asreaching new levels of sales performance inthe key markets of Britain, continental Europeand the United States.

26


Molson Breweries produces, markets, sellsand distributes beer in North America.Molson is the largest producer of beer inCanada and has a stable of more than 40beer brands.

Molson Canadian, Molson Export, MolsonDry, Molson Ice, Molson Golden.Other brands: Coors, Miller, Foster’s,Heineken, Corona.

Seven breweries: St John’s, Montreal,Etobicoke, Barrie, Regina, Edmonton andVancouver. Total brewing capacity of 13.2million hectolitres.

Largest share of the Canadian beer market(46%). Market leading brands in the dry andlight beer segments. Molson is the leadingbrewer in the two largest markets - Ontarioand Quebec - which together account for64% of Canadian beer sales. Total Canadiansales volume for the year was 9.1 millionhectolitres with a further 2.3 millionhectolitres exported to the United States.

Restructuring and efficiencies achievedduring the last year will contribute to thecontinuing improvement in Molson’sunderlying performance. With thereorganisation program well underway,Molson Breweries is in a position to moveforward, bolstered by signs of improvementsin brand performance and benefits flowingfrom Molson’s new decentralised structure.

4100


Inntrepreneur’s British pub network offers arange of dining, entertainment,accommodation and bar facilities. Hotelsinclude the successful chain, The Slug andLettuce, and a number of award-winningLondon pubs. Inntrepreneur’s RetailLinkscheme offers discounts, business servicesand development training for its retailers.

Foster’s and Foster’s Ice are two of the leadingbrands sold in Inntrepreneur hotels.

Inntrepreneur owns 2906 pubs throughoutBritain, the majority of which are leased.

The majority of Inntrepreneur’s pubs arelocated in Southeast England, Gloucestershire,South Wales, Yorkshire and Manchester.Around 1.3 million hectolitres of beer is soldthrough the pubs, of which approximately27% is Foster’s beer brands.

Inntrepreneur’s outlook improved markedlyduring the year, following the BritishGovernment’s decision that the company’s tiedbeer supply arrangements could continuebeyond the former March, 1998 deadline. Thisdecision placed IPCL on an equal competitivefooting with other independent British pubcompanies, and opened the way for a strongerand more productive partnership withretailers.

267

Net carrying value of the investment inInntrepreneur: £212.5 million


Carlton and United Breweries

Carlton and United Breweries continuesto grow its national market share, withtargeted marketing and brandinnovation lifting CUB to 55.2% in1996/97. Market share grew in everystate, and reached record levels in NewSouth Wales, Queensland, WesternAustralia and South Australia, despitestrong competition. The Australian beermarket grew for the first time in manyyears. Against a backdrop of 1% growthin the market, CUB achieved doubledigit profit growth for the fifthconsecutive year and consolidated itsposition as the market leader in the full-strength, low-alcohol and premium beersegments. The business contributed$364.1 million to EBIT.

Strong brands are the hallmark ofCUB’s continuing success. VictoriaBitter, Foster’s LightIce and CrownLager maintained their pre-eminentpositions in the marketplace, bolsteredby relevant advertising campaigns aimedat capitalising on the distinctive imageof each brand. VB continued the “hard-earned thirst” tradition, while “ExtremeRefreshment” summed up the appeal ofFoster’s LightIce. CUB’s fourth marketsegment leader, Carlton Cold, appearedin innovative new packaging for thesummer sports and leisure season,becoming the first beer in Australia sold in unbreakable PET bottles.

The market leaders were supplementedby three new brands during the year.Each brand expressed CUB’scommitment to maintaining a tightfocus on unexploited market segments,and furthering the company’s LeadEnterprise vision by responding quicklyand precisely to consumer demand.Foster’s Extra, launched in New SouthWales and Victoria, is a full-flavouredbeer in a distinctive heritage bottle,which has already made impressiveinroads into the premium market.Carlton Midstrength Bitter, brewed atYatala for the Queensland and WesternAustralian markets, utilises innovativebrewing techniques to produce a full-bodied beer aimed squarely at a uniquemarket segment in those two states.

The third new brand, Reschs SmoothBlack Ale, revives a favourite NewSouth Wales style to tackle a newnational growth market, theincreasingly popular dark beer segment.

With 20% sales growth for the year,Crown Lager remained the clear leaderamong premium beers, while CUB’sCascade also achieved record sales inthe premium beer segment. CarltonSpecial Beverages’ efforts to expand theimported premium beer market paid offwith excellent results for Corona,Guinness, Stella Artois, Miller, and anew CSB addition, Heineken. Corona,which now claims 19% of the importedbeer market, continued its reign asAustralia’s favourite foreign beer.subzero, the CUB product whichbrought a sophisticated edge to the New Age beverage market, built on itscontinuing dominance, with a 60%national market share.

Carlton Draught, a familiar favouritewith pub drinkers, received an imageboost with the commencement of theBrewery Fresh program. The trainingand accreditation program for pubs andclubs supplying draught beer guaranteesbest-quality product and remindsdrinkers of the intrinsic qualities of beerfresh from the keg.

Review of Operations

Australia’s most popularbeer, VB.

22

400

350

300

250

200

150

100

50

0

1993 1994 1995 1996 1997

Carlton and United Breweries EBITALH

Beer

($m)


23

Strategic acquisitions, innovative use oftechnology and streamlining of systemsfor optimal efficiency and customerservice are all elements of the LeadEnterprise philosophy which continuesto guide and shape the growth ofCarlton and United Breweries. Duringthe year, CUB acquired the 200,000hectolitre Darwin Brewery, consolidatingits growing strength in Australia’snorthern markets. The hotels division,Australian Leisure and Hospitality, alsostrengthened its portfolio to 127 hotels,with the acquisition of the BallaratBrewing Company properties. The division invested $10 million in a major refurbishment program, and developed a number of distinctivehotel dining and bar concepts, as well as the new Liquor Xpress banner groupfor bottle shops.

CUB’s continuing commitment totechnological expertise was expressed in upgrades at all breweries. BrewTech,CUB’s dedicated technology research and implementation business, focused on applying its skills to satisfying thetechnological needs of offshore FBGbreweries, as well as developinginnovative uses for brewing end-products. Two bio-resource products,Shrimp Activa aquaculture feed andMaltiplex malt extract, were developedand found ready markets in Australiaand overseas, as part of an ongoing program.

Utilising up-to-date information andentertainment technology, as well asexplaining the intricacies of the brewingprocess, were equally important in thedesign and creation of Abbotsford’s new$4 million Brewhouse visitors’ centre.The Brewhouse joins Yatala’s award-winning visitors’ centre as a publicexpression of CUB’s commitment todelivering quality and excellence to its customers and consumers.

CUB continued to reorganise for changeand improvement. Three business units– Beer, Retail and New Businesses – were established to enhance focus onthese key areas. Project Genesis, a two-year project to introduce newmillennium design for CUB processesand systems, continued an activeprogram of improvements. Theseincluded the establishment of anIntranet system and laying thegroundwork for new human resourcemanagement and demand and supplyforecasting programs during 1997/98.

Supply chain planning as a means toachieving operational efficiencies wasalso the focus of a change of businessphilosophy for the Logistics team.Logistics activities – purchasing,distribution, warehousing and dispatch– will now be driven by the need toimprove the supply chain, from rawmaterial suppliers to product delivery.The efficiency of the distributionnetwork, suppliers’ agreements andglass supply has been reviewed, andCUB logistics planning will now beguided by a single agreed forecast based on supply chain planning.

To enhance customer focus, sales teamsin two states were restructured intocustomer-responsive business channelsduring the year, with a national systemto be rolled out during 1997/98.

Sports sponsorship has been, andcontinues to be, important to thesuccessful promotion and brand-building programs of Carlton andUnited Breweries. The organisation hasconsistently contributed to supporting a range of sports, including AustralianRules football, cricket, horse racing,Grand Prix and touring car motor-racing, and surf lifesaving.

During 1996/97, CUB became anOfficial Supporter of the OlympicGames. In line with its long standingcommitment to the Olympics, CUBtook its sporting sponsorship to a newlevel by linking its Lead Enterpriseorganisational culture with the Sydney2000 Olympics. In addition, the Foster’sSports Foundation will raise up to $10million to support talented, aspiringAustralian athletes to train for andcompete in the Olympic Games. CUB’scommitment to the Games will berealised through its Lead Enterpriseculture by involving its employees andstakeholders, who will be encouraged to participate in all sponsorshipactivities.

During 1996/97 Foster’sbecame an OfficialSupporter of the Olympic Games.


Mildara Blass

In its first full-year contribution toFoster’s Brewing Group, Mildara Blassconfirmed its value as a profitable andprestigious asset, with excellent growthhorizons. Earnings before interest andtax (EBIT) rose 20.9%, on a full-yearcomparison, to $57.2 million aftergoodwill amortisation ($61.9 million,or 26.8%, before amortisation). The strong result underlined Mildara’sposition as one of the top ten profit-earners in the global wine industry,with a clear focus on the premium endof the market.

Another year of strong domestic andglobal performance by the MildaraBlass portfolio of premium brands set the tone for a period of growth and expansion, as the business pursuedopportunities in Australia and overseas.The integration of the newly acquiredRothbury Wines, and the implementationof an international strategy, involvingwinemaking ventures in California andChile, made 1996/97 a dynamic year for Mildara Blass.

Premium quality remains the hallmarkof Mildara Blass’ operations andproduct. Superior winemakingcontributed to success at majorAustralian wine shows, where Mildarabrands collected nine trophies and 73gold medals. A reputation for dedicationto quality also made Mildara’s crew of“flying” Australian winemakers morethan welcome in the “new world” wineregions of the Americas. The premiumbrands strategy continued to yieldexcellent results, with Wolf Blass,Yellowglen and Jamiesons Run now firmly entrenched as, respectively,Australia’s leading premium wine brand,top premium sparkling wine brand and largest-selling single premium red wine product.

Both Australian and international wineconsumers continued to cast their voteof confidence in Mildara Blass.Domestic volumes for 1996/97 grew by 29.6%, boosted by the launch oftwo new brands, Yellow and Annie’sLane, and the acquisition of theRothbury and Saltram brands. Yellow,the third successful line extension of the Yellowglen sparkling wine brand,immediately captured 15% of thepremium sparkling wine segment.Yellow, together with other MildaraBlass sparkling wine products,Yellowglen, Y and Andrew Garrett,delivered Mildara a 40% share of the Australian market for premiumsparkling wine.

Internationally, Wolf Blass, Black Opaland Jamiesons Run contributed to a22% rise in export volumes. WhileAustralian premium wine continues to perform strongly offshore, MildaraBlass believes that a greater number ofglobal markets are accessible if productis sourced from a range of winemakingcountries. Hence, rather than relyingsolely on Australian exports to expandMildara Blass’ share of the globalmarket, the decision was taken toproduce wine in Chile and California,using Australian expertise.


24

Mildara’s domesticvolumes wereboosted by thelaunch of newbrands – Annie’sLane and Yellow.

60

50

40

30

20

10

0

1993 1994 1995 1996 1997

Mildara Blass EBITPre FBG acquisition

Post FBG acquisition

($m)


25

The joint venture entered into withChilean wine company Vina SantaCarolina will produce a brand targetedat the American and British markets,while Mildara Blass winemakers willuse Californian grapes and facilities toproduce a new Californian brand forthe United States.

The lateral thinking which characterisesthe Mildara Blass offshore strategy isno less a feature of Mildara’s Australianacquisitions. The purchase of RothburyWines added the premium brandsRothbury, Saltram and St Huberts to the Mildara Blass portfolio, andRothbury’s earnings for the year improved as a result of the integration with Mildara Blass.

After the close of the financial year,Mildara Blass invested $160 million in the acquisition of the world’s secondlargest wine club operator, CellarmasterWines. Wine clubs account for 14% of all wine sales in Australia and areconsidered to be an important conduitto the growing proportion of wineconsumers who are seeking to expandtheir knowledge and appreciation ofwine. At the same time, Mildara Blassbelieves the Cellarmaster acquisition,which includes 200 hectares ofpremium South Australian vineyard

land, a modern winery, Australia’slargest contract wine bottler, the country’s major cork importer andthe largest Australian-owned telephonebureau service provider, has greatpotential for expansion into marketsoverseas where the wine club concept is relatively undeveloped.

With its focus on the future, Mildara Blass has also acted quickly tocounteract worldwide grape shortagesand ensure that its productioncapabilities keep pace with its pursuitof growth opportunities. As well as theChilean and Californian agreements,Mildara established a further 280 hectares of new vineyards in Australia during 1996/97.

Black Opal, together withWolf Blass and JamiesonsRun, contributed to a 22%rise in export volumes forMildara Blass.


Foster’s Asia

The creation of the Foster’s Asiabusiness during the year, bringingFoster’s China together with a newFoster’s India initiative and a team ofAsia business development executives,represented an important recognitionthat Foster’s Brewing Group is nowmoving into the second phase of its strategic Asian development. The addition of the Aurangabadbrewery near Mumbai (formerlyBombay) in India to the three existing operations in China confirmed the company’s strongcommitment to the region, and toemerging markets in particular.

The volume of beer sold by Foster’sChina increased by 34% during theyear, more than twice the overallmarket growth, with earnings beforeinterest and tax (EBIT) showing a $19 million loss. A number of factorscontributed to the Foster’s Chinafinancial result. For the most part,these factors are neither new nordissimilar to the factors shapingbusiness results for other companieswhich have invested in China. Theseinclude pricing and competitivepressures, and other factors typical ofa developing business environment.

Although Foster’s Asia has beenextremely active in undertakingmeasures to improve bottom lineperformance, management recognisesthe special challenges of the Chinamarket, and the investment which isrequired before success can be achieved in what will ultimatelybecome the world’s biggest beer market.

Shanghai Foster’s and Tianjin Foster’s both recorded significantvolume increases for the year. At Guangdong, volumes declined andefforts to gain market share with thelaunch of new brands have not yetenjoyed the success of similar efforts in Shanghai and Tianjin.

During the year, Foster’s China tookaction to consolidate its position in the market and grow volumes by investment in new brands, the establishment of sales anddistribution infrastructure andnetworks, and by creating furtherpremium beer capacity at the centralShanghai Foster’s Brewery. These investments for the future are considered critical to the division’sability to capitalise on opportunities asthe business environment matures andthe market for premium and sub-premium brands expands. Success in these segments, which are small and competitive but growing quickly,will be essential if Foster’s China is toachieve acceptable margins and long-term success in the China market.

26


Increased sales ofLargo helped ensureTianjin Brewery ran atfull capacity throughoutthe peak beer season in China.

1,200

1,000

800

600

400

200

0

1993 1994 1995 1996 1997

China Volumes(‘000 Hls)


Six new brands were launched duringthe year, including the Hong Kong-styleEazy in Guangzhou, Power’s for thesouthern Hainan Island market, andWhiz, a sub-premium beer successfullytargeted at aspirational young adultdrinkers in Tianjin. The expansion ofthe Foster’s China brand portfolioprovided important opportunities toutilise corporate brewing expertise andinnovation, enhance and grow salesand distribution relationships, andexpand volumes. The creation of Whizby Tianjin Foster’s Brewery exemplifiedthese efforts. The beer was designed tomake greater use of local raw materialswithout compromising FBG technicalor product standards. An innovativemarketing campaign and a revampedsales and distribution systemcontributed to high demand for Whizand spin-off sales for existing brandLargo, resulting in the Tianjin Breweryrunning at full capacity seven days aweek through the peak season.

During the year, the Foster’s brand,initially restricted to the Guangdongmarket, was launched in Shanghai,Beijing and Tianjin. With thecompletion of a $28 million capacityand technology upgrade of ShanghaiFoster’s, the brewery began producingthe flagship brand during the 1997peak season. Shanghai Foster’s also

launched the German premium brandHolsten, supplementing a portfolio of brands which claims approximately15% of the Shanghai market. With atotal capacity of 1.5 millionhectolitres, the Shanghai Brewery isnow one of the largest in China’scosmopolitan economic hub.

All three Foster’s China breweries are now fully supported by new salesoffices and warehouses, staffed bylocal and expatriate Mandarin-speakers and located in the key centresof Beijing, Guangzhou, Shanghai,Tianjin, Zhuhai and Haikou. In HongKong, Foster’s Special Beverages alsomade inroads into the market,achieving a 20% increase in salesvolumes across all brands and a 25%increase in sales volumes for Foster’s.

Outside China, two other emergingmarkets, India and Vietnam, have beenidentified for future investment. Bothcountries have the right demographics,acceptable beer margins and littleexcess beer production capacity. Thedecision to establish a $22 millionventure in India is based on thisanalysis of market potential, as well as an assessment of what constitutes a prudent level of investment for the company.

Initial marketing activity wasundertaken during the year to seed the Indian market with Foster’s, in preparation for the completion ofthe first stage of the 350,000 hectolitrebrewery at Aurangabad. Local staffhave been appointed, and it isexpected that the new brewery will be supplying Foster’s for the thrivingnearby Mumbai market in time for the 1998 peak beer season.

Foster’s Asia has also entered into a conditional agreement in Vietnam,with a view to establishing brewingoperations in this key South East Asianmarket. However, the proposedventure is still subject to a number of regulatory approvals.

Profitable medium-term growth in high potential markets remains a keyobjective of Foster’s Asia. With threebreweries in China, a first stagebrewery in India and an entry intoVietnam, Foster’s Asia is positioningitself to take advantage of rapidgrowth in the beer markets of thisdynamic region.

27

Foster’s China’sinvestment in distributionand sales networks ishelping to consolidate its position in the China market.


Foster’s International

The Foster’s brand, an Australian icon worldwide, grew in influence andpopularity during the year, nurtured anddeveloped by Foster’s International. In its first full year of operation, thedivision aggressively pursued a globalbrand strategy which took Foster’s tonew levels of sales performance in thekey markets of Britain and the UnitedStates. Total sales and licensed volumesfor the year rose by 12.8% to more than6.7 million hectolitres (approximately74 million cases). Foster’s Internationalworked with global partners to completethe encirclement of Europe with Foster’sbrewing sites, and to maximise thepotential benefits flowing from thebrand’s global sponsorshiparrangements. New markets werepursued in South America, Asia, Africaand the Middle East, building the brandto the third most widely-distributedlager brand in the world, available in more than 120 countries.

The success of the Foster’s brand is not reflected in Foster’s International’snegative contribution to EBIT for1996/97. Instead, the result reflects the commitment of this division to executing its strategy for theglobalisation of the brand. In pursuit of this objective, short-term returns willbe reinvested in establishing a sales anddistribution network, as well as keymarketing initiatives. In 1996/97, thisincluded start-up costs for regionaloffices in Australia, Britain, the UnitedStates and the Middle East, all of whichacted as important drivers for marketgrowth and promotional initiativesduring the year, including a muchexpanded long-term sponsorshipagreement for global Grand Prix racing.

Foster’s International is also in the earlystages of a contracted, annuallyescalating royalty income arrangementwith Scottish & Newcastle, licensedbrewers and marketers of Foster’s in the brand’s largest market, Britain andEurope. Under this arrangement, the royalty stream from the Foster’sbrand will not fully reflect the true value of hectolitres sold inBritain/Europe until 2001. In themeantime, the arrangement does notdiminish the determination of Foster’sInternational to work with Scottish &Newcastle in Britain and Europe tokeep the brand on its current high-growth trajectory.

During the year, Foster’s confirmed its position as the top-selling beer inLondon, where it claims 41% of thestandard lager market, nearly threetimes its nearest competitor. Foster’s is the most widely-distributed lager inBritain and with 1.3 million pints nowconsumed every day, is moving closer toachieving the number one positionnationally. Foster’s Ice is the top-sellingIce beer in Britain, and holds fourthposition in the highly competitivepremium packaged lager segment. Totalsales for Britain and Europe increasedby 12.8% during the year, and Foster’smoved to number nine in Europe. Thebrand maintained its position as theleading international, non-Europeanbeer in Germany, the home of beer, andnew growth opportunities are expectedto arise as a result of the brewing dealcompleted with San Miguel Breweries in Spain, Western Europe’s third largestbeer market.

Foster’s also continued its very strongperformance in the United States, where Miller Brewing Company, whichmarkets and distributes the brand, has designated Foster’s a top fivepriority brand. Volumes for the yearwere up 17%, and the brand moved up two positions, to become the sixthlargest imported brand in the UnitedStates. The imported beer category isthe fastest-growing and mostcompetitive market segment in theUnited States, yet growth in the Foster’sbrand was more than double the rate of growth of the total segment.

28


Foster’s is now the sixthlargest imported brand inthe United States.


Growth in all key markets wassupported by a combination ofinnovative advertising, well-targetedsponsorships and rigorous attention to the quality and standardisation ofpackaging and promotional materials.Quirky Australian humour continued to be the theme of successful advertisingcampaigns, with the top-rating“Australian for Beer” campaign in the United States supplemented by a popular new television and radiocampaign in Britain featuring sports-minded Australian comedians Roy andH.G., and an exciting new campaign forthe Asian region featuring a high-spirited kangaroo, part of the globallogo for Foster’s.

The brand’s international associationwith the Australian qualities of goodhumour, relaxation and a passion forspectator sport was exploited furtherthrough a number of sponsorship dealscompleted during the year. Foster’sInternational reviewed and expandedthe brand’s traditional sponsorship ofFormula One Grand Prix, becoming anOfficial Sponsor of Grand Prix racingworldwide. The new deal supplementedsignage rights with exclusive programadvertising and hospitality, and pouringrights as the Official Beer at most races.Foster’s International also negotiatedworldwide sponsorship of the AustralianFootball League’s Footy Highlightstelevision program.

Foster’s has continued to extend itsglobal reach, developing new markets ingrowth areas such as Asia, the MiddleEast, Africa and South America. The establishment of a regional office in Dubai during the year built on astrong market in the region, and gavean immediate boost to the brand’sexpansion into high-growth markets in the Eastern Mediterranean region, the Central Asian republics and NorthernAfrica. The region recorded one of thebrand’s strongest worldwide growth ratesfor 1996/97, increasing sales by 17%and underlining the real performancebenefits to be gained from Foster’sInternational’s marketing, distributionand relationship building efforts.

In Asia, Foster’s continued to makesignificant inroads into India, SouthEast and Northern Asia. A continuingstrategy to extend distribution and sales of Foster’s throughout the regionyielded good results in a number ofmarkets. Foster’s was also launched in Shanghai, China, where it will bebrewed and marketed by Foster’sShanghai Brewery.

29

Foster’s Ice is the top-selling Ice beer in Britain.



Molson Breweries

Molson Breweries continued itssubstantial reorganisation programduring the year, including the re-establishment of its key businessrelationship with Coors BrewingCompany. The Canadian market leaderis now in a position to move forwarddecisively, bolstered by signs ofimprovements in brand performanceand benefits flowing from Molson’s new decentralised structure.

While Molson’s underlying performanceimproved this year, its contribution toFoster’s Brewing Group profit declined.This was largely as a result of MolsonBreweries’ abnormal payment of C$100 million to Coors in April, 1997,in full settlement of the arbitration andall other legal proceedings betweenCoors, Molson Breweries and itspartners. Coors Light is brewed byMolson and is the number one lightbeer in Canada. In October, 1996, anarbitration panel ruled that Molson hadbreached its licensing arrangement withCoors, by entering into partnershipwith 20% stakeholder Miller Brewingin 1993. Subsequent to the settlement,Foster’s Brewing Group and TheMolson Companies Limited formed aseparate partnership with Coors tomanage Coors brands in Canada.Under the terms of the partnership,which has yet to be approved by Miller,Coors will have a 50.1% interest andFBG and TMCL will each hold24.95%. The partnership is to be calledCoors Canada.

The continuing drive to achieveoperational efficiencies resulted in anabnormal charge associated with theclosure of Molson’s Winnipeg breweryin mid-1997, and other charges relatedto the general reorganisation ofoperations, both of which werereflected in the decline of earnings.However, the new decentralisedstructure established in 1995/96 alsohelped Molson to consolidate itsmarket leadership position, byfacilitating focus on core brandstargeted at market segments in thehighly fragmented and regionalisedCanadian market.

The Molson trademark brandscontinued to perform strongly duringthe year, despite an overall 0.1%decline in the Canadian beer market.Molson Canadian is now close toachieving the number one position inthe national beer market, and overcamefierce competition in the largest beermarket, Ontario, to increase marketshare and confirm its status as theprovince's top-selling beer. Sales in thesecond largest Canadian market,Quebec, declined overall but showedpositive gains in the last quarter.Molson Dry, a brand successfullymarketed in association with Molson’srock music sponsorships, maintained itsnumber one position in the province.Coors Light expanded its lead as thetop light beer nationwide, and theCarling family of beers also continuedtheir growth in the popular pricesegment.

30

Molson Dry maintainedits number one position inQuebec, one of Canada'slargest beer markets.


The general decrease in sales volumewas offset by the acquisition of anumber of independent distributors in Quebec and rises in consumer prices,which contributed to the netimprovement in underlying brewingprofit. Molson’s market share slippedmarginally from 46.6% to 46.1%.Molson consolidated its position duringthe year as the leading brewer in five ofthe seven markets in which it competesdirectly with its major competitor.

Molson’s determination to build apositive relationship with consumers,based on responsiveness to marketdesires and building brand loyalty,continued to develop in tandem withinnovative marketing programs during1996/97. Traditional sports andentertainment sponsorship events, suchas the Molson Indy and events atToronto’s Molson Amphitheatre, havebeen supplemented by the interactiveMolson Internet site, which continues tobe highly successful in reaching currentand potential Molson consumers.

A further step in the consumerrelationship was taken with theestablishment of the Total SatisfactionGuaranteed Program for all Molsonbeer brands. Molson beer is nowpackaged with its brewing date clearlydisplayed, and consumers and licenseeshave been educated about the flavourbenefits of drinking fresh beer, as well as optimal storage methods and times. The Program guarantees that consumerswho are not 100% satisfied with a Molson beer will receive a productreplacement or refund by contactingMolson’s toll-free consumer line.

Another product innovation aimed atdeveloping consumer preferences forfresh beer, as well as servicing thegrowth market associated with homeentertainment, was the trial introductionduring the year of the Molson CanadianHome Draft Unit. Holding six litres ofbeer, the portable unit is designed toprovide consumers with draft beerwhich will stay fresh for 21 days afteropening in their home refrigerators.

31

Molson has introduced a Total SatisfactionGuaranteed Programaimed at enhancingconsumer satisfactionwith Molson products.



Inntrepreneur Pub Company

The Inntrepreneur Pub Company (IPCL)successfully negotiated a major turningpoint during the year. The landmarkdecision by the British Government torelease IPCL from the 1991 MergerUndertakings, and allow the company tocontinue its tied beer supply arrangementswith its pubs beyond March, 1998,finally positioned IPCL on an equalcompetitive footing with other Britishindependent pub companies.

The decision marked a watershed in along period of uncertainty, stemmingfrom agreements made at the time of the formation of the Inntrepreneur jointventure. Since that time, IPCL had faceda deadline which would have severelyundermined its ability to operatecompetitively from 1998, in a market in which other independent pubcompanies have been allowed to retaintied supply arrangements to their benefit.A condition of the decision was thatIPCL offer its retailers alternative beerbrands after March 1998, in addition to those currently supplied by Scottish & Newcastle.

Inntrepreneur immediately took theopportunity to capitalise on its newstability and increased purchasing powerby launching a revolutionary package ofbenefits and services to help retailersdevelop their businesses and competemore aggressively in the marketplace.The RetailLink package offered retailerssignificant discounts on products andservices, and builds new opportunities for expanding the consultation andnegotiation with retailers that hascharacterised recent Inntrepreneurinitiatives. During the year, these haveincluded the popular Retailer Workshopsfor training and business development,National and Regional BusinessDevelopment Forums and a newfacilitative Code of Practice on LettingPubs, which received a warm welcomethroughout the industry.

With Inntrepreneur facing a new era of growth and development, a continuingprogram of pub refurbishment andredesign was expanded. Included in the200 developments completed was a £1 million, state of the art pub project at Bohemia in the west of England,which attracted considerable publicinterest. The company also won publicaccolades for its London pubs, The White Swan and The Lord Clyde,which won the Evening Standard Pub of the Year and London Licensee of the Year Award respectively. This was thesecond consecutive year that the EveningStandard Pub of the Year award has been won by an Inntrepreneur pub.

32

Inntrepreneur continues to work closely with pubretailers in Britain, helpingthem to compete moreaggressively in the market.


Lensworth

Lensworth is the renamed business unitresponsible for the remaining residualfinance group assets of the company’smerchant banking business, whichceased new finance activities in 1989.

The orderly disposal of non-core assetshas proceeded in recent years, assistingthe company in the achievement of itsdebt reduction objectives. The sale ofthese assets has also delivered significantcash, realising $940 million since June30, 1993. During 1996/97, assetrealisations totalled $145 million, andthe business contributed $15.4 millionto EBIT as an abnormal item. Of thisamount, rental income totalled $8.5 million and profits from assetrealisations totalled $6.9 million.

A summary of the assets remainingwithin the portfolio at 30 June 1997 is contained in the notes to the accounts.There were net external assets of $322.2 million after specific and generalprovisions. The underlying value of the assets and the appropriateness ofprovisions are regularly reviewed. The general provision of $88.5 millionat 30 June 1997 represented 21.5% of the remaining portfolio which thecompany believes is a conservativeapproach to valuation of the assets.

Other Assets

BeswickFoster’s Brewing Group has a residualinvestment in Beswick Pty Ltd, acompany which holds approximately17% of the issued capital of BHP. Under an agreement with othershareholders, Foster’s realised theincrease in value on this investmentduring 1994 on condition that itmaintained a residual interest until atleast 1999. The company’s ongoingeconomic interest is approximately2.7%. This investment, the value ofwhich fluctuates with the market priceof BHP shares, has a book value of $73 million.

Scottish & Newcastle OptionFoster’s Brewing Group owns an optiongeared to movements in the Scottish &Newcastle share price. Under the termsof the agreement to sell the Couragebrewing business to Scottish &Newcastle in 1995, the company wasgranted a right, exerciseable in either1999 or 2000, to receive the differencein the value of 10 million sharesbetween the strike price of £5.37 pershare and the market price at the timethe option is exercised. The Scottish &Newcastle share price at 30 June 1997was £7.39. This option wasindependently valued at the time of the transaction at £12 million (A$26.8million). If the option could have beenexercised at 30 June, Foster’s wouldhave received approximately $45 millionin cash or the equivalent number ofScottish & Newcastle shares, at thediscretion of Scottish & Newcastle.

Crown Casino SharesCUB had been a founding shareholderin Crown and, by agreement, wasrequired to hold its shares until thepermanent casino in Melbourne wascompleted. That occurred in May 1997when 16.1 million shares were held. In June 1997, 5 million shares were sold at $2.16 per share. The $5.4million profit on that transaction and $0.5 million on sale of rights is reflected in the 1996/97 result. A further 10 million shares were sold in early Julyat a price of $2.20 a share on whichthere was a profit of $11.0 millionwhich will be brought to account in 1997/98.

33


Sponsorship and Community

Continuing its strong tradition ofsupport for the communities in whichthe company operates, Foster’s BrewingGroup and its businesses invested in anumber of sponsorship activities andcontributed to a range of non-profitorganisations during 1996-97.

Foster’s support for the work of charities and community groups duringthe year saw donations made to a widerange of organisations including theMercy Hospital, Royal Children’sHospital, Open Family Australia andthe Mental Health Foundation.

Sponsorship of high-profile Australianand international events provides thecompany with opportunities to boostbrands growth in line with thecompany’s business strategy, whilemaking an important contribution tosporting and cultural events which arehighly valued by the community.

Foster’s has sponsored Australia’s mostfamous horse race, the Melbourne Cup,for eleven years, providing internationalexposure for the Group and theFoster’s brand. In addition, other keysponsorships for Foster’s include theMelbourne International Festival, the National Gallery of Victoria and the Australian Chinese YoungAchievers Awards.

Carlton and United Breweries has anextensive sports sponsorship program.In 1996/97 CUB supported the OneDay World Series Cricket Internationals,the Oceanman Series, Australian RulesFootball, the Australian Masters GolfTournament and the Sydney 2000Olympic Games. Via the Foster’s SportsFoundation, CUB is building on its roleas an Official Supporter of the Sydney2000 Olympic Games to providefinancial assistance to aspiring athletes.CUB also sponsored a number ofregional activities throughout Australiaincluding picnic race meetings, surflifesaving and football.

The arts are the primary focus ofsponsorship activities for MildaraBlass. Sponsorships during the yearincluded the Melbourne SymphonyOrchestra and the Art Gallery of NSW.Mildara Blass also sponsors a range ofother sporting, charity and visual artsorganisations, including the WaratahsNSW rugby team.

Foster’s Asia sponsorship activitiescentre on China where the divisionsponsors a range of cultural andcommunity activities. In addition,Foster’s Asia supports a rugby team inBeijing and a water acrobatics team inGuangzhou.

Foster’s International expanded itssponsorship of Formula One GrandPrix racing during the year, becomingan Official Sponsor of Grand Prixracing worldwide. In addition to theRugby World Cup Sevens, the divisionadded the Australian Football League’sFooty Highlights program to itsworldwide sponsorship program.

For nine years, Molson Breweries hasbeen the leading supporter of AIDSrelated benefits and charities inCanada. In addition, Molson isinvolved in the music industry throughits partnership with Universal ConcertsCanada as well as sponsoring theMolson Indy and events at Toronto’sMolson Amphitheatre. Molson is also along-time supporter of responsibledrinking programs.

The sponsorship activities ofInntrepreneur Pub Company focuslargely on activities to build closerrelationships with pub lessees.Inntrepreneur also supports charitiesand community organisationsthroughout Britain.

34

Sports sponsorships arean important part ofFBG’s strategy to boostbrands growth inAustralia and overseas.


Board of Directors

The following changes in the Board ofDirectors have taken place during the year:

• Mr F J Swan was appointed as an additional Director in August 1996.

• Mr J F H Clark retired as a Director in October 1996.

• Dr J E Lewis retired as a Director in February 1997 and Mr G C Evanswas appointed a Director in his place.

• Messrs G C Evans, P E Jeans and D R Zimmerman, who were nominated by The Broken Hill Proprietary CompanyLimited, and Messrs S Oishi andE Yonenaga, who were nominated by AsahiBreweries, Ltd., retired as Directors in July1997 following the completion of the share buy-back.

The members of the Board of Directors as at the date of this report are set out below,together with details of their qualifications,experience, other responsibilities and holdingsin Foster’s Brewing Group Limited and related bodies corporate.

J T RALPH AO, HON L.L.D., F.C.P.A., F.A.I.M., F.A.I.C.D., F.AUS.I.M.M. (64)

Member of the Board since February 1994 and Chairman since October 1995.

Mr. Ralph is Chairman of Pacific Dunlop Limited,Deputy Chairman of the Commonwealth Bankof Australia Limited and Telstra CorporationLimited and is a Director of Pioneer InternationalLimited. He is President of the Australia JapanBusiness Co-operation Committee, NationalPresident of the Australian Institute of CompanyDirectors and is a member of the Board of theMelbourne Business School.

Securities held: 3,356,000 1 330,000 4

G A COHEN, DIP. COMM. LAW, DIP. TAX LAW, F.C.A. (63)

Member of the Board since November 1991.

Mr Cohen is a former senior partner of Arthur Andersen and is the Chairman of HIHWinterthur International Holdings Ltd and FBG Superannuation Limited, and a Director of Diversified United Investment Limited andThe Alambie Wine Company Limited.

Securities held: 33,38,400 1 030,000 4

B HEALEY, (63)

Member of the Board since December 1993.

Mr Healey is Chairman of Portfolio PartnersLimited, Biota Holdings Ltd. and Centro PropertiesLimited and a Director of ICI Australia Ltd andAWA Limited.

Securities held: 3,356,000 1 320,000 4

F G HILMER, L.L.B., L.L.M., M.B.A. (52)

Member of the Board since November 1990and Deputy Chairman since March 1992.

Professor Hilmer is Professor of Management at the Graduate School of Management,University of New South Wales, Chairman ofPacific Power, Deputy Chairman of WestfieldHoldings Limited and a Director of Port JacksonPartners Limited, Ascham Foundation Limitedand Westfield America Inc.

Securities held: 3,963,000 1 250,000 4

E T KUNKEL, B.SC. (54)

Member of the Board, President and Chief Executive Officer since March 1992.

Mr Kunkel is Chairman of Molson Breweriesand a Director of a number of subsidiaries ofFoster’s Brewing Group Limited. Mr Kunkel is the only Executive Director on the Board of the Company.

Securities held: 3,296,510 1 300,000 2

3,600,000 3 150,000 4

F J SWAN, B.SC. (56)

Member of the Board since August 1996.

Mr. Swan is a former Chief Executive Officer of Cadbury Schweppes Australia Limited, formerDirector of Cadbury Schweppes plc and a Directorof the Commonwealth Bank of Australia Limitedand National Foods Limited.

Securities held: 0.030,000 1

3 Beneficially held options over 3,600,000 unissued ordinary shares.

4 J.B. Were Exchangeable Notes Series 3 (Foster’s)

1 Fully paid ordinary shares.

2 Partly paid to 1.67 cents.

35

The Directors from left to right:F J Swan, G A Cohen, J T Ralph (Chairman),E T Kunkel (President and Chief ExecutiveOfficer), F G Hilmer, B Healey.


Board of DirectorsThe Board of Directors of Foster’s Brewing

Group Limited has responsibility for guiding

and monitoring the business and affairs of the

Group, including compliance with the Group’s

corporate governance policies and procedures,

on behalf of shareholders. Responsibility for

the operation and administration of the Group

is delegated by the Board to the Chief Executive

Officer who is accountable to the Board.

The Articles of Association of the Company

specify that:

• The number of Directors may not be less

than six nor more than twenty (being such

a number within this range as the Board may

determine from time to time). The Board

has determined that for the time being,

the maximum number of Directors

shall be six.

• At each Annual General Meeting:

• one third of Directors (other than the

Chief Executive Officer and Directors

who have been appointed to fill casual

vacancies since the previous Annual

General Meeting) are required to retire

and may stand for re-election; and

• Directors who have filled casual vacancies

are required to be elected at the first

Annual General Meeting following

their appointment by the Board.

In addition, the Board has resolved that

the positions of Chairman of the Board

and the Chief Executive Officer will

be held by different persons.

The Board has established, and keeps under

constant review, its own processes by which

it undertakes its responsibilities, and seeks to

achieve best practice in matters of governance

and accountability. These processes include:

• A compliance reporting program whereby

executives of the Group are required to bring

certain matters to the attention of Directors,

on at least a quarterly basis. ‘Material

matters’ are to be reported immediately

and ‘significant incidents’ within seven days.

The program presently covers occupational

health and safety, anti-discrimination,

employee and industrial relations,

superannuation, environmental matters,

document retention, foreign investment,

Corporations Law, stock exchange reporting,

product liability and trade practices.

• Reports by management, both oral and

written, to Directors on a monthly basis,

in addition to the compliance reporting

program, covering the financial standing,

operating results and business risks of

the Group.

• The use of formal policies and charters

on a wide range of issues that are material

to the Group, including:

• Treasury Activities;

• Ethics;

• Dealing in Company Securities;

• Human Resources;

• Acceptance of Directorships in Public

Companies; and

• Political Donations.

• A number of Board Committees,

the functions of which are to assist the

Board carry out its duties in specific areas.

In addition, the Company’s Compliance

Working Group, which consists of representatives

of management, is responsible for implementing

the Board policy for compliance.

Board CommitteesAudit Committee*

The Audit Committee was established in 1982,

and its primary objective is to assist the Board

of Directors in fulfilling its responsibilities

relating to accounting and reporting practices.

By reference to its charter, the Committee

meets at least four times each year. In addition,

the Chairman is required to call a meeting of

the Committee, when requested to do so by

a Committee member, the Chief Executive

Officer, the Senior Vice President Finance and

Investor Relations or the Company’s external

auditors. The Committee has unlimited access

to both internal and external auditors, and to

senior management of the Company. During

the financial year, the internal audit function

was outsourced.

The primary duties and responsibilities of

the Audit Committee are to:

• recommend to the Board which external

auditors to appoint;

• review the audit plan of the external auditors

and reasons for subsequent variations from

these plans;

• review the resources and organisation

of the Internal Audit function, including the

qualifications and experience of the officers

concerned;

• ensure that no management restrictions

are being placed upon either the internal

or external auditors;

• evaluate the adequacy and effectiveness

of the Group’s administrative, operating

and accounting policies and controls through

active communication with operating

management, internal audit and the external

auditors; and

• review public financial and regulatory reports

prior to their release.

The Committee consists entirely of non-

executive Directors. The members are

Messrs G A Cohen (Chairman), B Healey

and J T Ralph.

36

Corporate Governance


Human Resources Committee*

The Human Resources Committee was

established in 1981 with the principal objective,

as set out in its charter, to formally review and,

where appropriate, recommend on salaries and

bonuses and more generally, on Group issues,

plans, policies and current philosophies related

to the management of human resources.

The Committee consists entirely of non-

executive Directors. The members are Messrs

J T Ralph (Chairman), B Healey, F G Hilmer

and F J Swan.

* All Directors of the Company receive

copies of Committee papers and may

attend meetings at the invitation of

the Committee Chairman.

Succession Committee

The Succession Committee was established

in 1991 to manage Board succession, including

recommendations for the selection, appointment

and retirement of Directors.

The Committee consists of a majority

of non-executive Directors. The members

are Messrs J T Ralph (Chairman), F G Hilmer

and E T Kunkel.

Remuneration of Non-executive Directors

The fees payable to non-executive Directors are

determined by the Board within the aggregate

amount approved by shareholders. Shareholder

approval was last given at the Annual General

Meeting held on 23 October 1995 for aggregate

remuneration of $900,000 per year.

Remuneration of Senior Executives

The remuneration levels of the Chief Executive

Officer and other senior managers are determined

by the Human Resources Committee after

taking into consideration those levels that

apply to similar positions in comparable

companies in Australia, as reviewed by

independent consultants.

Risk Identification and Management

The Group is committed to the identification,

monitoring and management of risks associated

with its business activities. The Group has

established a number of wide-ranging reporting

mechanisms and management procedures

to deal with risks including financial, business,

interest rate, foreign exchange and

regulatory risks.

The Group also closely and continually

monitors international risks associated with

its global activities.

Code of EthicsPolicy

It is the Group’s policy for Directors

and officers to observe high standards of

conduct and ethical behaviour in all of the

Group’s activities, including its dealings with

employees, customers, consumers, suppliers,

business partners, the general community

and the environment in which it operates.

Senior executives are permitted to have one

non-executive directorship of an external

company depending on the particular

circumstances, but only on the recommendation

by the Chief Executive Officer for approval

of the Board.

Conflicts of Interest

Apart from legal obligations, Directors are

required to disclose to the Board any material

contract in which they have an interest.

Where a matter is being considered by the

Board in which a Director has a personal

interest, that Director may not be present

while the matter is being considered

and may not vote on the matter.

Purchase and Sale of Company Securities and

Disclosure of Directors’ Interests

It is the Group’s policy that:

• Directors notify the Chairman of the Board

before buying or selling securities in the

Company, except where such purchases

or sales are made within one month

following the:

– announcement of the Group’s half-yearly

or annual results; or

– holding of the Annual General Meeting;

• where approval is not required pursuant

to the foregoing, Directors still notify the

Board of purchases and sales;

• similar approval is required from the Chief

Executive Officer by senior managers who

purchase or sell Company securities; and

• the Board recognises that it is the individual

responsibility of each Director and other

officers, to ensure that they comply with the

spirit and the letter of the insider trading

laws. Notification to the Board in no way

implies Board approval of any transaction.

Directors’ Access to Independent Advice

Any Director who requires legal advice in

relation to the performance of his duties as

a Director of the Company must inform the

Chairman of the issue that raises the concern

that requires legal advice, and advice is then to

be obtained in consultation with the Chairman.

The costs reasonably incurred are reimbursable

by the Company. When the advice is to hand,

it is to be made available to all other Directors.

37


Annual General Meeting

The Annual General Meeting of Foster’sBrewing Group Ltd will be held on Monday 20 October 1997 at 11 am at the MelbourneConcert Hall, Victorian Arts Centre, St KildaRoad, Melbourne, Victoria. Full details are contained in the Notice of Meeting sent to all shareholders.

Voting Rights

Shareholders are encouraged to attend theAnnual General Meeting but, when this is notpossible, to use the proxy form by which theycan express their views.

Every shareholder, proxy or shareholder’s representative has one vote on a show of hands.In the case of a poll, each share held by everyshareholder, proxy or representative is entitled to

a) one vote for each fully paid share; and

b) voting rights in proportion to the paid upamount of the issue price for partly paid shares.

Stock Exchange Listings

Shares of Foster’s are listed under the symbol“FBG” on the Australian Stock Exchange. The securities of the Company are traded on the Australian Stock Exchange under CHESS(Clearing House Electronic Sub Register System)which allows settlement of on-market transactionswithout transfer of shares having to rely onpaper documentation. Shareholders seekingmore information about CHESS should contacttheir stockbroker or the Australian Stock Exchange.

Ordinary shares in Foster’s Brewing Group arealso traded on the stock exchanges of Londonand Tokyo. American Depositary Receipts,sponsored by the Bank of New York, are tradedon the Toronto and Montreal Stock Exchangesand over the counter in nearly all states of the USA.

Enquiries

If you have any questions about yourshareholding, share transfers or dividends,please contact our share registrar:

Coopers & Lybrand

Level 12, 333 Collins StreetMelbourne Victoria Australia 3000Telephone: +61 3 9205 4999Facsimile: +61 3 9205 4900E-mail: [email protected]

Free call: 1800 331 721 (for Australian callers outside Melbourne)

It would be helpful if shareholder referencenumbers were included in all correspondence to the share registrar.

For enquiries relating to the operations of thecompany, please contact the Foster’s BrewingGroup Investor Relations department on

Telephone: +61 3 9633 2773Facsimile: +61 3 9645 7224E-mail: [email protected]

Written correspondence should be directed to

Vice President Investor Relations

Foster’s Brewing Group LimitedGPO Box 753FMelbourne Victoria 3001

Dividends

A final dividend of 6 cents per share will be paidon 3 October 1997 to shareholders registeredon 19 September 1997. For Australian tax purposes, the dividend will be 50% franked at the 36% tax rate.

Australian shareholders can elect to have dividends paid directly into a bank accountanywhere in Australia. Forms for this purposeare available on request from the share registrar.

Tax File Numbers

Australian taxpayers who do not provide detailsof their tax file number will have dividendssubjected to the top marginal personal tax rateplus Medibank levy. It may be in the interests of shareholders to ensure that tax file numbershave been supplied to the share registrar. Forms are available from the share registrarshould you wish to notify us of your tax filenumber or tax exemption details.

Change of Address

It is important for shareholders to notify theshare registrar in writing promptly of anychange of address. As a security measure, theold address should also be quoted as well asyour shareholder reference number.

Key Dates

19 September 1997

Books closing date for 1996/97 final dividend.

26 September 1997

Annual report sent to shareholders

3 October 1997

Final dividend for 1996/97 payable

20 October 1997Annual General Meeting

9 February 1998

Announcement of profit result for half year ending 31 December 1997

6 March 1998*

Books closing date for 1997/98 interim dividend

20 March 1998*

Interim dividend for 1997/98 payable

30 June 1998End of financial year

24 August 1998*

Announcement of profit result for 1997/98

* Likely dates. Subject to confirmation.

38

Shareholder Information


39

Five year Historical Summary

Year ended June$ million 1993 1994 1995 1996 1997

Total operating revenue 6,494.2 5,068.4 4,866.5 2,535.8 2,779.9

ProfitEBIT

CUB 211.2 249.7 282.1 326.6 364.1 Courage (discontinued) 208.3 174.4 207.6 - -Canada 107.1 78.2 71.9 61.4 58.8 Asia (China) - (11.2) (11.8) (17.4) (19.0)International - - - - (3.2)Mildara Blass - - - 16.1 57.2Corporate and other investments (41.1) (29.1) (52.9) (23.2) (31.1)

Total EBIT 485.5 462.0 496.9 363.5 426.8

Net profit after tax (pre abnormals) 278.8 279.0 348.5 282.4 268.3Abnormals (after tax) 30.9 2.7 (61.2) 10.9 (17.8)Net profit after tax (post abnormals) 309.7 281.7 287.3 293.3 250.5

Average shares outstanding (million) 1,736.3 1,951.6 1,960.0 1,960.8 1,962.1 - fully diluted 1,736.3 1,951.6 1,960.0 1,960.8 1,962.1

Earnings per share (pre abnormals) (cents) 16.1 14.3 17.8 14.4 13.7Earnings per share (post abnormals) (cents) 17.8 14.4 14.7 15.0 12.8

Cash FlowEBITDA (continuing operations) 321.8 334.2 342.1 428.2 507.4Asset sales 887.0 787.1 460.3 1,160.5 301.8Free cash flow 1,768.1 698.6 839.5 1,346.1 542.5

Capital expenditure (145.4) (161.1) (164.1) (190.0) (195.8)Investments (135.5) (88.0) (112.5) (527.2) (79.2)Dividend payments (40.6) (134.1) (196.0) (212.5) (215.8)Net cash flow 1,446.6 315.4 366.9 416.4 51.7

Financial StrengthNet debt (end period) 2,641.1 1,852.3 1,579.2 1,066.9 1,134.7Total shareholders’ equity 2,485.9 2,819.3 2,906.5 2,944.3 2,897.6Book value per share ($) 1.3 1.4 1.5 1.5 1.5Net tangible asets per share ($) 0.9 1.1 1.1 1.0 0.9Net debt/equity (%) (end period) 106.2 65.7 54.3 36.2 39.2 Interest paid cover (times)

– pre abnormals 2.4 3.0 3.8 5.9 4.7

Shareholder ReturnsDividend (cents per share) 10.0 10.0 10.4 11.0 11.0 Dividend cover (times) 1.6 1.4 1.4 1.4 1.2Franking (%) 42.7 42.5 - - 25.5 Return on equity (%)1 11.3 10.0 12.2 9.7 9.4

Dividend yield % (average price) 4.5 4.7 5.4 5.0 4.5 Earnings yield % (average price)2 7.2 6.6 9.2 6.5 5.5

Share prices– year high 3.18 2.67 2.20 2.40 2.74– year low 1.82 1.63 1.70 2.00 2.02– close 1.90 1.77 2.08 2.19 2.46– average 2.24 2.15 1.94 2.20 2.47

1. Net profit before abnormal items as % of ordinary shareholders' funds

2. Based on net profit after tax (pre-abnormals)


Foster’s Brewing Group Limited

77 Southbank Boulevard

Southbank, Victoria 3006

Australia

Telephone: (61) 3 9633 2000

Facsimile: (61) 3 9633 2002

Carlton and United Breweries Limited



Australia

Telephone: (61) 3 9633 2000

Facsimile: (61) 3 9633 2002

Mildara Blass Wines Limited

170 Bridport Street

Albert Park, Victoria 3206,

Australia

Telephone: (61) 3 9690 9966

Facsimile: (61) 3 9690 9319

Senior Vice PresidentCorporate AffairsFoster’s Brewing GroupPeter A. Bobeff

Senior Vice Presidentand Chief Financial OfficerFoster’s Brewing GroupTrevor L. O’Hoy

Senior Vice PresidentPublic AffairsFoster’s Brewing GroupR. Graeme Willersdorf

Chief Executive OfficerMolson BreweriesJohn R. Barnett

Chief Executive OfficerInntrepreneur Pub Company LimitedMichael R.M. Foster

Managing DirectorCarlton and United BreweriesNuno A. D’Aquino

Managing DirectorMildara Blass Ray C. King

Managing DirectorFoster’s AsiaJames S. King

Senior Vice PresidentFoster’s InternationalRichard W. Scully

Managing DirectorLensworth Finance Group LimitedJohn F. O'Grady

Foster’s Asia



Australia

Telephone: (61) 3 9633 2000

Facsimile: (61) 3 9633 2002

Foster’s International



Australia

Telephone: (61) 3 9633 2000

Facsimile: (61) 3 9633 2002

Molson Breweries

North Tower,

175 Bloor Street East

Toronto, Ontario, M4 W3S4

Canada

Telephone: (1) 416 975 1786

Facsimile: (1) 416 975 4088

(40% owned by Foster’s Brewing Group)

Inntrepreneur Pub Company Limited

Mill House

Aylesbury Road

Thame

Oxfordshire OX9 3AT

United Kingdom

Telephone: (44) 01844 262000

Facsimile: (44) 01844 261332

(50% owned by Foster’s Brewing Group)

Lensworth Group Limited

Level 34

385 Bourke Street

Melbourne, Victoria 3000

Australia

Telephone: (61) 3 9606 1700

Facsimile: (61) 3 9606 1717

40

Executives and Foster’s Brewing Group Contacts


Foster’s Brewing Group Limited and its controlled entities 1

Index

Director’s Report

Consolidated Profit and Loss Statement

Consolidated Balance Sheet

Consolidated Statement of Cash Flows

FBG Limited Profit and Loss Statement

FBG Limited Balance Sheet

FBG Limited Statement of Cash Flows

Notes to the Financial Statements

1 Summary of significant accounting policies

2 Operating revenue

3 Operating profit

4 Abnormal items

5 Income tax

6 Cash

7 Receivables

8 Inventories

9 Investments

10 Property, plant and equipment

11 Intangibles

12 Residual Lensworth assets

13 Other assets

14 Accounts payable

15 Borrowings

16 Provisions

17 Share capital

18 Reserves

19 Outside equity interest in controlled entities

20 Earnings per share

21 Dividends

22 Remuneration of directors and executives

23 Auditors’ remuneration

24 Commitments

25 Contingent liabilities

26 Segment results

27 Superannuation commitments

28 Notes to the statement of cash flows

29 Standby arrangements and unused credit facilities

30 Derivative financial instruments

31 Foreign currency receivables and payables

32 Related party disclosures

33 Group entities

Statement by Directors

Audit Report

Details of Shareholders and Shareholdings

Page number

43

48

49

50

51

52

53

54

54

58

58

59

60

60

61

61

62

65

65

66

67

67

68

69

69

71

71

72

72

73

76

76

77

78

79

80

82

83

84

85

87

93

94

95

FOSTER’S BREWING GROUP LIMITED

A.C.N. 007 620 886

Director’s Report, FinancialStatements and Statutory InformationYear ended 30 June 1997

11781 Foster’s Finan ours 11/6/99 10:06 AM Page 1

42 Foster’s Brewing Group Limited and its controlled entities


43Foster’s Brewing Group Limited and its controlled entities

The Directors present their report together with

the consolidated accounts of the economic entity

(the “Group”), comprising Foster’s Brewing Group Limited

(the “Company”) and all its controlled entities,

for the financial year ended 30 June 1997.

1. Principal activities of the Group

The principal activities of the Group during the course

of the financial year were the production and marketing

of alcoholic and non-alcoholic beverages and a major

investment in licensed properties.

2. Financial Results

The consolidated net profit of the Group, including

abnormal items and after deducting income tax expense

and outside equity interest, was $250.5 million.

The result compares with a profit of $293.3 million

for the previous year.

The profit from operations before abnormal items and tax

was $336.7 million, compared with the reported result of

$302.2 million in the previous year.

A detailed review of the results of the Group is set out in

the section headed “Financial Commentary” of the Annual

Report to Shareholders on pages 18 to 19.

3. Review of Operations

A review of the operations of the Group during the financial

year and the results of these operations are set out in the

section headed “Review of Operations” of the Annual

Report to Shareholders on pages 22 to 33.

4. State of Affairs

There was no significant change in the state of affairs

of the Group that occurred during the financial year ended

30 June 1997.

5. Dividends

The Directors declared a final dividend of six cents per

ordinary share, franked to the extent of 50% at a tax rate

of 36%, to be paid out of retained profits for the year ended

30 June 1997. An interim dividend of five cents

per ordinary share, unfranked, was paid on 21 March 1997.

The total dividends for the year will be $200.6 million.

A final dividend of six cents per ordinary share, unfranked,

was paid on 4 October 1996 declared in the report for the

year ended 30 June 1996.

6. Events Subsequent to Reporting Date

On 5 June 1997, The Broken Hill Proprietary Co. Ltd.

(BHP) entered an agreement for the placement of 616.6

million shares to a broad spread of institutional and retail

investors. On the same day, the Company entered into

a buy-back agreement with Asahi Beer International

Holding (Australia) Ltd. (Asahi) for the purchase

of 254.5 million shares. The effective buy-back price

of $2.46 per share was equal to the net price received

by BHP from its placement of shares.

On 24 July 1997, shareholders approved the buy-back

of 254.5 million shares for $625 million from Asahi,

representing 13% of the Company’s fully paid shares

on issue. The buy-back was completed on 31 July 1997.

Following its share placement, BHP had a residual

holding of 100 million shares. This represents 5.9%

of the Company’s fully paid ordinary shares on issue

upon completion of the buy-back. BHP has announced

its intention, subject to regulatory approvals, to dispose

of these shares by way of a non pro-rata entitlement offer

to its shareholders, after 5 October 1997. Upon completion

of the buy-back, Asahi had a residual holding of 0.9%

of the Company’s fully paid ordinary shares on issue.

Asahi has since sold this residual holding.

Directors’ ReportFor the year ended 30 June 1997



Directors’ Report(continued)

m

$m

$m

%

The effect of the above buy-back of $625 million on total

shares, total shareholders’ equity, net borrowings and

gearing is as follows:

30 June 1997 Buy-back After buy-back

Total number of shares 1,962 (254) 1,708

Total shareholders’ equity 2,897.6 (625.0) 2,272.6

Net borrowings 1,134.7 625.0 1,759.7

Gearing 39.2 - 77.4

Also subsequent to 30 June 1997, Mildara Blass Limited,

a controlled entity of the Group, acquired the Cellarmaster

Wines Group whose principal activity is the direct

marketing of table wine products for a total outlay,

including borrowings, of approximately $160 million.

7. Future Developments

In the opinion of the Directors, it would prejudice

the interests of the Company if the Directors’ Report were

to refer to any further likely developments in the operations

of the Company in subsequent financial years or to the

expected results of these operations, beyond the coverage

given to these matters elsewhere in this Annual Report

to Shareholders.



8. The Directors

The following changes in the Board of Directors have

taken place during the year:

• Mr F J Swan was appointed as an additional

Director in August 1996.

• Mr J F H Clark retired as a Director in October 1996.

• Dr J E Lewis retired as a Director in February 1997

and Mr G C Evans was appointed as a Director

in his place.

• Messrs G C Evans, P E Jeans and D R Zimmerman,

who were nominated by The Broken Hill Proprietary

Company Limited, and Messrs S Oishi and

E Yonenaga, who were nominated by Asahi Breweries,

Ltd, retired as Directors in July 1997 following

the completion of the share buy-back.

The members of the Board of Directors as at the date

of this report are set out below, together with details

of their qualifications, experience, other responsibilities

and holdings in Foster’s Brewing Group Limited and

related bodies corporate.

J T Ralph AO, Hon L.L.D., F.C.P.A., F.A.I.M., F.A.I.C.D.,

F.Aus.I.M.M. (64)

Member of the Board since February 1994

and Chairman since October 1995.

Mr Ralph is Chairman of Pacific Dunlop Limited,

Deputy Chairman of the Commonwealth Bank of Australia

Limited and Telstra Corporation Limited and is a Director

of Pioneer International Limited. He is President of the

Australia Japan Business Co-operation Committee,

National President of the Australian Institute of Company

Directors and is a member of the Board of the Melbourne

Business School.

Securities held: 6,000(1), 30,000(4)

G A Cohen, Dip. Comm. Law, Dip. Tax Law, F.C.A. (63)

Member of the Board since November 1991.

Mr Cohen is a former senior partner of Arthur Andersen

and is the Chairman of HIH Winterthur International

Holdings Ltd and FBG Superannuation Limited,

and a Director of Diversified United Investment Limited

and The Alambie Wine Company Limited.

Securities held: 8,400(1) , 30,000 (4)

B Healey (63)

Member of the Board since December 1993.

Mr Healey is Chairman of Portfolio Partners Limited,

Biota Holdings Ltd and Centro Properties Limited

and a Director of ICI Australia Ltd and AWA Limited.

Securities held: 6,000(1), 20,000(4)

F G Hilmer, L.L.B., L.L.M., M.B.A. (52)

Member of the Board since November 1990

and Deputy Chairman since March 1992.

Professor Hilmer is Professor of Management at the

Graduate School of Management, University of

New South Wales, Chairman of Pacific Power, Deputy

Chairman of Westfield Holdings Limited and a Director of

Port Jackson Partners Limited, Ascham Foundation Limited

and Westfield America Inc.

Securities held: 63,000(1), 50,000(4)

E T Kunkel, B.Sc. (54)

Member of the Board, President and Chief Executive

Officer since March 1992.

Mr Kunkel is Chairman of Molson Breweries

and a Director of a number of subsidiaries of Foster’s

Brewing Group Limited. Mr Kunkel is the only Executive

Director on the Board of the Company.

Securities held: 296,510(1), 300,000(2), 3,600,000(3), 150,000(4)

F J Swan, B.Sc. (56)

Member of the Board since August 1996.

Mr Swan is a former Chief Executive Officer of Cadbury

Schweppes Australia Limited, former Director of Cadbury

Schweppes plc and is a Director of the Commonwealth

Bank of Australia Limited and National Foods Limited.

Securities held: 30,000(1)

Footnotes

1. Fully paid ordinary shares.

2. Partly paid to 1.67 cents.

3. Beneficially held options over 3,600,000 unissued ordinary shares.

4. J B Were exchangeable notes Series 3 (Foster’s)



10. Options

Options over 900,000 unissued ordinary shares were

issued during the year in accordance with the FBG

Employee Share and Option Plan. These options were

issued to FBG Incentive Pty. Ltd. as trustee for two

employees of the Company.

Details of the ordinary shares under options at

the date of this report are:

Issue Date Exercise Price Hurdle Price Expiry Date No. of Options No. of Shares

$ per share $ per share

1996 2.12 2.82 Sept 1998 4,480,000 4,480,000

1996 2.12 3.08 Sept 1999 4,480,000 4,480,000

1996 2.12 3.40 Sept 2000 4,480,000 4,480,000

1997 2.36 2.82 Sept 1998 300,000 300,000

1997 2.36 3.08 Sept 1999 300,000 300,000

1997 2.36 3.40 Sept 2000 300,000 300,000

14,340,000 14,340,000

These options can only be exercised if the last sale price

of the Company’s shares on the Australian Stock Exchange

reaches or exceeds the hurdle price on any five consecutive

business days during the year preceding the time of exercise.

The names of all persons who currently hold options

are entered in the register kept by the Company, which may

be inspected free of charge. These disclosures are made

in accordance with Class Order 94/284 issued by the

Australian Securities Commission on 8 March 1994.

9. Directors’ Meetings

The number of Directors’ meetings and meetings of

committees of Directors held in the period each Director

held office during the financial year and the number of

meetings attended by each Director are:

Committees

Director Board Audit Human Resources Other *

Contin uing A B A B A B A B

G A Cohen 12 11 4 4 4 3

B Healey 12 12 2 2 1 - 6 6

F G Hilmer 12 11 1 1 4 4

E T Kunkel 12 12 10 10

J T Ralph 12 12 4 4 1 1 6 6

F J Swan 11 11 5 5

For mer

J F H Clark 4 4 1 1

G C Evans 5 4

P E Jeans 11 11 1 1 1 1

J E Lewis 6 6 1 1

S Oishi 11 6

E Yonenaga 11 6

D R Zimmerman 11 11 4 4 1 1

• Column A indicates the number of meetings held during the period the Director was a member of

the Board and/or Committee.

• Column B indicates the number of meetings attended during the period the Director was a member

of the Board and/or Committee.

In a number of instances Directors attended meetings of the Audit Committee and Human Resources

Committee by invitation. These attendances are not in the above table. The President and Chief

Executive Officer, Mr Kunkel, attended all meetings of the Audit Committee and the Human Resources

Committee by invitation.

* Other meetings of Committees of Directors are convened as required to discuss specific issues or

projects.

Directors’ Report(continued)



11. Directors’ Benefits

Since the end of the previous financial year, no Director

of the Company has received or become entitled to receive

a benefit, other than a benefit included in the aggregate

amount of emoluments received or due and receivable by

Directors shown in the year end consolidated accounts by

reason of a contract made by the Company, a controlled

entity or a related entity with the Director, or with a firm

of which the Director is a member, or with an entity in

which the Director has a substantial financial interest,

with the exception of 1,000 ordinary shares issued

to Mr E T Kunkel, President and Chief Executive Officer

and a Director of the Company. Financial assistance

by way of an interest free loan was made available

to purchase these shares.

12. Indemnification of Officers

The Company has entered into insurance contracts which

indemnify directors and officers of the Company and its

controlled entities against liabilities. In accordance with

normal commercial practices, under the terms of the

insurance contracts, the nature of the liabilities insured

against and the amount of premiums paid are confidential.

No person has been indemnified and no company in the

Group has made an agreement for indemnifying any person

who is or has been an officer of any company in the Group,

except costs, including legal fees, for certain former directors.

13. Rounding

The Company is a company of the kind referred to in

the Australian Securities Commission Class Order 97/1005

dated 9 July 1997. In accordance with that Class Order,

amounts in the financial statements and this Directors’

Report have been rounded to the nearest tenth of one

million dollars or, where the amount is $50,000 or less,

zero, unless specifically stated to be otherwise.

This report is made in accordance with a Resolution

of the Board of Directors and is signed for and on behalf

of the Directors.

Dated 25 August 1997

John T Ralph

Chairman

E T (Ted) Kunkel

President and Chief Executive Officer


48

Profit and Loss StatementConsolidated

Consolidated Profit and Loss Statement for the year ended 30 June 1997 1997 1996 Note

Consolidated$m $m

Operating revenue 2 2,779.9 2,535.8

Operating profit before interest and abnormal items 426.8 363.5

Net interest expense 3 (90.1) (61.3)

Operating profit before abnormal items and income tax 3 336.7 302.2

Abnormal items 4 (41.0) (1.7)

Operating profit before income tax 295.7 300.5

Income tax attributable to operating profit 5 (47.7) (8.5)

Operating profit after income tax 248.0 292.0

Outside equity interest in operating profit after income tax 2.5 1.3

Operating profit after income tax attributable to members of the chief entity 250.5 293.3

Retained profits/(accumulated losses) at the

beginning of the financial year 89.6 (1,307.9)

Adjustment resulting from capital reconstruction 17 – 1,303.5

Adjustment resulting from change in accounting policy 9 (115.0) –

Aggregate of amounts transferred from reserves 18 28.0 16.5

Total available for appropriation 253.1 305.4

Ordinary dividends 21

– interim paid (98.1) (98.1)

– final payable (102.5) (117.7)

Retained profits at the end of the financial year 52.5 89.6

The accompanying notes form an integral part of these financial statements

Foster’s Brewing Group Limited and its controlled entities



Balance SheetConsolidated

Consolidated Balance Sheet at 30 June 1997 1997 1996 Note

Consolidated$m $m

Current assets

Cash 6 120.0 147.7

Receivables 7 279.0 305.7

Inventories 8 206.2 211.0

Investments 9 10.7 –

Residual Lensworth assets 12 104.0 96.2

Other 13 42.8 40.1

Total current assets 762.7 800.7

Non-current assets


Inventories 8 100.3 78.5

Investments 9 1,028.5 1,121.3

Property, plant and equipment 10 1,699.2 1,530.3

Intangibles 11 1,013.0 1,021.3

Residual Lensworth assets 12 218.2 338.2

Other 13 70.8 48.0

Total non-current assets 4,181.7 4,254.5

Total assets 4,944.4 5,055.2

Current liabilities

Accounts payable 14 291.5 367.6

Borrowings 15 72.6 47.1

Provisions 16 223.4 251.0

Total current liabilities 587.5 665.7

Non-current liabilities


Borrowings 15 1,182.1 1,167.5


Total non-current liabilities 1,459.3 1,445.2

Total liabilities 2,046.8 2,110.9

Net assets 2,897.6 2,944.3

Shareholders’ equity

Share capital 17 1,963.5 1,962.2

Reserves 18 845.2 853.9

Retained profits 52.5 89.6

Shareholders’ equity attributable to members of the chief entity 2,861.2 2,905.7

Outside equity interest in controlled entities 19 36.4 38.6

Total shareholders’ equity 2,897.6 2,944.3



50

Statement of Cash FlowsConsolidated

Consolidated Statement of Cash Flows for the year ended 30 June 1997 1997 1996 Note Inflows/(Outflows)

Consolidated$m $m

Cash flows from operating activities

Receipts from customers 3,888.3 3,638.0

Payments to suppliers, employees, principals (3,534.3) (3,345.0)

Dividends received 1.0 1.4

Interest received 36.7 20.9

Interest paid (131.8) (132.7)

Income tax paid (18.6) (24.1)

Funds withdrawn from Molson Breweries Partnership 14.2 62.9

Net cash flows from operating activities 28 255.5 221.4

Cash flows from investing activities

Payments to acquire controlled entities

(net of cash balances acquired) 28 (44.4) (511.2)

Payments to acquire outside equity interest in controlled entities (29.5) (9.3)

Payments for property, plant and equipment (195.8) (190.0)

Payments for acquisition of investments and other assets (5.3) (6.7)

Loans made (14.9) (39.6)

Proceeds from repayment of loans 75.1 117.3

Proceeds from sale of property, plant and equipment 18.4 2.8

Proceeds from sale of other investments and other assets 208.3 147.6

Proceeds from sale of Courage brewing business 28 – 892.8

Net cash flows from investing activities 11.9 403.7

Cash flows from financing activities

Proceeds from borrowings 15 1,775.6 2,417.8

Repayment of borrowings 15 (1,870.4) (2,780.9)

Dividends paid (215.8) (212.5)

Equity contribution from outside equity interests 0.1 3.8

Net cash flows from financing activities (310.5) (571.8)

Total cash flows from activities 15 (43.1) 53.3

Cash at the beginning of the financial year 140.4 120.7

Effect of exchange rate changes on foreign currency cash flows and cash balances 13.8 (33.6)

Cash at the end of the financial year 28 111.1 140.4





Profit and Loss StatementFoster’s Brewing Group Limited

Profit and Loss Statement for the year ended 30 June 1997 1997 1996 Note

FBG Limited$m $m

Operating revenue 2 177.3 573.5

Operating profit/(loss) before interest and abnormal items (24.8) 350.1

Net interest income 3 128.5 136.7

Operating profit before abnormal items and income tax 3 103.7 486.8

Abnormal items 4 – 12.5

Operating profit before income tax 103.7 499.3

Income tax attributable to operating profit 5 0.9 0.9

Operating profit after income tax 104.6 500.2

Retained profits/(accumulated losses) at the beginning of the financial year 284.4 (1,303.5)

Adjustment resulting from capital reconstruction 17 – 1,303.5

Total available for appropriation 389.0 500.2

Ordinary dividends 21

– interim paid (98.1) (98.1)

– final payable (102.5) (117.7)

Retained profits at the end of the financial year 188.4 284.4



52

Balance SheetFoster’s Brewing Group Limited

Balance Sheet at 30 June 1997 1997 1996 Note

FBG Limited$m $m

Current assets

Cash 6 – 2.4

Receivables 7 3,016.7 2,913.1

Other 13 1.0 0.8

Total current assets 3,017.7 2,916.3

Non-current assets


Investments 9 1,100.4 998.6

Property, plant and equipment 10 19.5 20.1

Other 13 3.2 2.3

Total non-current assets 1,128.2 1,023.9

Total assets 4,145.9 3,940.2

Current liabilities


Borrowings 15 1,225.9 909.5


Total current liabilities 1,345.3 1,038.4

Non-current liabilities


Total non-current liabilities 0.2 8.3

Total liabilities 1,345.5 1,046.7

Net assets 2,800.4 2,893.5

Shareholders’ equity

Share Capital 17 1,963.5 1,962.2

Reserves 18 648.5 646.9

Retained profits 188.4 284.4

Total shareholders’ equity 2,800.4 2,893.5





Statement of Cash FlowsFoster’s Brewing Group Limited

Statement of Cash Flows for the year ended 30 June 1997 1997 1996 Note Inflows/(Outflows)

FBG Limited$m $m

Cash flows from operating activities

Receipts from customers – 0.2

Payments to suppliers, employees, principals (18.6) (20.4)

Dividends received – 300.0

Interest received 0.1 6.9

Interest paid – (6.9)

Net cash flows from operating activities 28 (18.5) 279.8

Cash flows from investing activities

Capital injected into controlled entities (1.0) –

Payments for property, plant and equipment (1.4) (1.6)

Proceeds from sale of property, plant and equipment 0.3 0.2

Proceeds from repayment of loans 0.7 0.1

Proceeds from sale of other investments and other assets 0.2 –

Net cash flows from investing activities (1.2) (1.3)

Cash flows from financing activities

Dividends paid (215.8) (212.5)

Net cash flows on behalf of controlled entities 230.7 (64.3)

Net cash flows from financing activities 14.9 (276.8)

Total cash flows from activities 15 (4.8) 1.7

Cash at the beginning of the financial year 1.9 0.2

Cash at the end of the financial year 28 (2.9) 1.9



Notes to the financial statements


Note 1 Summary of significant accounting policies

General

The financial statements are a general purpose financial

report and have been prepared in accordance with the

requirements of the Corporations Law, Australian

Accounting Standards and Urgent Issues Group

Consensus Views.

The carrying amounts of all non-current assets have been

reviewed and, where appropriate, relevant assets have been

written down to their recoverable amount (from future use

and/or disposal as appropriate). In assessing recoverable

amount, the directors have elected not to take into account

the effect of discounting expected net cash flows to their

present value.

Subject to the exceptions referred to elsewhere in this note

with respect to valuation of investments, property, plant

and equipment and brand names, the financial statements

have been prepared on the basis of historical cost principles.

Principles of Consolidation

The consolidated financial statements have been prepared

for the economic entity (referred to as the “Group”),

comprising Foster’s Brewing Group Limited (FBG Limited)

as the chief entity, and all its controlled entities. Controlled

entities are listed in note 33.

Goodwill

Goodwill on acquisition is capitalised and amortised

on a straight line basis over the lesser of the period of time

during which the benefits are expected to arise and twenty

years. The carrying value of each item of goodwill is

reviewed annually. All material amounts of goodwill

are currently being amortised over twenty years.

Inventories

Inventories of finished goods, raw materials and stores

and work in progress are valued at the lower of cost

(using average or FIFO basis) and estimated net realisable

value. Cost of manufactured goods is determined on a

consistent basis, comprising prime costs and an appropriate

proportion of fixed and variable overhead expenses.

Inventories of wine stocks, shown as work in progress

– at cost, have been classified between current and

non-current based on the Group’s sales projections

for the ensuing year.

Properties Held For Sale

Properties held for sale include freehold and leasehold land

and buildings which are no longer required for operating

purposes. They are included at cost or valuation, which

is not greater than estimated net realisable value.

Investments

Investments in controlled entities are initially brought

to account at cost and are revalued from time to time.

Partnerships

The Group’s investment in the Molson Breweries

Partnership is included in the financial statements at

the directors’ 1990 valuation (based on their assessment

of the underlying net worth of the investment at that time),

plus the Group’s share of profits thereafter and less funds

withdrawn from the Partnership and the net book value

of the 10% partnership interest sold in 1993. The Group’s

interest in other partnerships is included in the financial

statements at cost, adjusted for the Group’s share of profits

or losses as disclosed in the financial statements of

the partnerships. The Group’s share of partnership results

for the year is included in the consolidated profit and loss

statement.

Other

The Group’s interests in other entities are included

in the financial statements at cost. Dividends and other

distributions from these investments are recognised

in the profit and loss statement when received.



Note 1 Summary of significant accounting policies (continued)

Change in accounting policy

The directors have applied the ASC Class Order 97/0798

which provides relief from the requirements of AASB 1016

“Disclosure of Information about Investments in Associated

Companies” on the condition that they comply with the

proposed revised AASB 1016 “Accounting for Investments

in Associates”, circulated by the Australian Accounting

Standards Board. Accordingly, material investments

in associates are accounted for in the consolidated financial

statements by applying the equity method for the first time

this year. In previous years investments in associates were

accounted for under the cost method and dividends were

recognised in the profit and loss account when receivable.

An adjustment of $115.0 million was debited directly to

consolidated retained profits at 1 July 1996 to recognise

the difference between the value of the investment in the

parent entity’s accounts and the equity interest in the net

assets of the investee company. The change in accounting

policy resulted in a credit to 1997 profit and loss account

of $2.1 million. Further details in relation to the equity

accounting of associates are set out in note 9. The 1996

carrying values of investments in associates have not been

adjusted to place them on a comparable basis with current

year amounts.

Property, Plant and Equipment

Plant and equipment is depreciated by the Group so that

the assets are written off over their estimated useful

economic lives, using reducing balance or straight line

methods as appropriate. Lease premiums and leasehold

improvements are written off over the period of the lease

or estimated useful economic life, whichever is the shorter.

Freehold buildings used in the production of income and

which are to be retained are depreciated at rates which vary

with the circumstances.

Property, plant and equipment shown at valuation has been

revalued on an existing use basis. It is the Group’s policy

to undertake valuations of property, plant and equipment

on a regular basis, at intervals not exceeding three years.

The last valuation was in 1996.

Plant and equipment under construction is not revalued

and is shown as Projects in Progress at cost.

Vineyard Development

Development costs for new vineyards include direct

materials, direct labour and an appropriate allocation

of overheads and interest. Such capitalisation continues

until the expiration of four years or until the vineyards

produce to 80% of their anticipated capacity, whichever

is the earlier. Such capitalised amounts do not result

in the carrying value of the vineyard developments exceeding

their recoverable amount. Vineyard developments in progress

are not revalued as part of the regular revaluation programme

because they are regarded as a separate class of asset

and carried at cost until the development is completed.

On completion, the vineyard developments are

depreciated over their expected useful lives.

Leasing

Where an asset is acquired by means of a finance lease,

the present value of the minimum lease payments is

recognised as an asset at the beginning of the lease term

and amortised on a straight line basis so as to write the

asset off over its estimated useful life. The liability in

respect of capitalised leases is reduced by the principal

component of each lease payment and the interest

component is expensed.

Leases classified as operating leases are not capitalised

and lease rental payments are charged against profits

as incurred.

Brand names

The brand names of the Carlton and United business

are carried at directors’ valuation 1994. For the purpose

of the 1994 valuation, reference was made to an independent

valuation performed at 30 June 1994 which was based on

the lower of capitalised royalty streams (actual or imputed)

and estimated current market value. In carrying out their

valuation, while the directors followed the same

methodology as the independent valuers, they adopted

several different assumptions which they considered to be

more appropriate in the circumstances and which resulted

in a lower value. Other brand names related to the brewing

business acquired since 30 June 1994 are shown at cost.


Notes to the financial statements(continued)



Brand names of the Mildara Blass and Rothbury business

are included in the financial statements at cost, determined

by reference to an independent valuation completed

following the acquisition of these businesses in 1996.

Expenditure incurred in developing, maintaining or

enhancing brand names is written off against operating

profit in the year in which it is incurred.

The brand names are not amortised as the directors

believe that their useful lives are of such duration that

the amortisation charge, if any, would not be material.

The carrying value of these brands is reviewed each year

to ensure that it is not in excess of recoverable amount.

At 30 June 1997 this review is supported by an independent

valuation of the brands which indicates the carrying value is

conservative and is significantly below recoverable amount.

Treatment of the Molson Breweries Partnership brand

names is described in note 9.

Lensworth Group (formerly Finance Division)

Residual Lensworth assets are included in the balance sheet

under current assets or non-current assets, as appropriate,

and are separately identified to reflect the winding down

of the Lensworth operations. All of the external liabilities

relating to the Lensworth Group are included on a line by

line basis in the consolidated balance sheet. Full details

of residual Lensworth assets are shown in note 12.

The carrying value of all residual Lensworth assets has

been subject to ongoing review during the year, on the basis

of an orderly realisation of those assets, taking into account

each asset’s net earnings and the expenditure required

to optimise the value of the asset over its expected time

horizon for realisation. The Group’s experience with

residual Lensworth assets in the current year is that

realisations have generally been achieved at or above

their net book value.

Assuming a continuation of the orderly realisation of assets

and no major decline in property values over the period in

which the assets are to be realised, the directors are satisfied

that the remaining level of provisions against residual

Lensworth assets is adequate. Specific and general provisions

against these assets stood at $67 million and $89 million,

respectively, at year end.

Interest on performing loans is brought to account on

an accruals basis. Loans have been included in receivables

(note 12) at the amount of principal outstanding plus

interest accrued.

Employee Entitlements

Liabilities for employees’ entitlements to wages and salaries,

annual leave, sick leave and other current employee

entitlements are accrued at undiscounted amounts.

Liabilities for other employee entitlements, which are not

expected to be paid or settled within twelve months of

reporting date, are accrued in respect of all employees

at the present value of future amounts expected to be paid.

Derivative Financial Instruments

The Group utilises derivative financial instruments,

solely for hedging purposes, in the normal course of

actively managing its exposures to fluctuations in interest

and exchange rates.

All material foreign currency transactions are hedged.

Gains and losses on hedges covering foreign exchange

exposures in respect of specific purchase and sale agreements

are deferred and included in the determination of the

amounts at which the transactions are brought to account.

The net effect of interest rate swap agreements is included

in the calculation of net interest. The carrying amounts

of interest rate swaps, which comprise net interest

receivables and payables accrued, are included in assets

or liabilities respectively.

Refer note 30 for further discussion on specific use

of derivative financial instruments.




Foreign Currencies

All figures in the accompanying financial statements and

notes are expressed in Australian currency unless specifically

identified as being otherwise.

Transactions denominated in a foreign currency are converted

at the exchange rate at the date of the transaction.

Foreign currency balances arising from those transactions

are translated at the exchange rates at reporting date.

Gains and losses resulting from trading transactions

are included in the determination of the profit or loss

for the year.

Financial statements of foreign controlled entities have

been converted to Australian currency at reporting date

using the current rate method. Gains and losses arising

from conversion of financial statements of foreign controlled

entities using this method on consolidation and on inter-entity

accounts with foreign controlled entities and on hedges of

investments in foreign controlled entities are taken directly

to the foreign currency translation reserve.

Income Tax

The Group uses the liability method of tax effect accounting.

No provision has been made for foreign taxes which may

arise in the event of retained profits of foreign controlled

entities being remitted to Australia as there is no present

intention to make any such remittances. No provision has

been made for capital gains tax which may arise in the

event of sale of revalued assets as it is not the Group’s

intention to sell any of these assets.

Comparatives

Where applicable, comparatives have been adjusted to place

them on a comparable basis with current year figures.


Notes to the financial statements (continued)


Note 2 Operating revenue 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Net beer sales 1,918.6 1,848.9

Other brewing group trading revenue 494.4 428.9

Wine group net trading revenue 211.2 73.2

Other operating revenue

– asset sales and realisations 0.3 12.7 62.4 57.7

– interest, dividends, rental 176.0 560.8 80.8 104.5

– share of net profits of associates 2.1 –

– other 1.0 – 10.4 22.6

177.3 573.5 2,779.9 2,535.8

Net sales of beer and wine is after deducting excise and other

duties and taxes of $1,213.5 million (1996 $1,163.9 million).

Net beer sales includes the Group’s share of the net beer sales

of the Molson Breweries Partnership, this share totalling

$565.0 million for the 1997 year (1996 $560.8 million).

Wine group net trading revenue includes the sale of wine

and spirits by the Mildara Blass Group. Other brewing group

trading revenue includes revenue derived from hotel operations,

contract brewing, royalties and licence fees and sales of

other beverages.

Note 3 Operating profit 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Operating profit before abnormal items and income tax has been arrived

at after (charging) and crediting:

interest received from

– controlled entities 164.2 169.9

– other related parties 1.1 3.2

– other persons 0.1 – 33.3 36.5

interest paid to

– controlled entities (35.1) (33.2)

– other related parties (1.0) (0.3)

– other persons (0.7) – (122.9) (99.8)

finance charges – finance leases (0.6) (0.9)

Net interest (expense)/income 128.5 136.7 (90.1) (61.3)

(continued next page)



Note 3 Operating profit (continued) 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

depreciation and amortisation of

– property, plant and equipment (1.8) (1.7) (70.1) (58.0)

– plant and equipment under finance lease (1.5) (0.7)

– goodwill (9.0) (6.0)

amounts to provisions for

– doubtful debts – trade debtors (1.2) (1.0)

– doubtful debts – other debtors (0.1) 1.0

– doubtful debts – loans to other persons 3.3 0.8

– employee entitlements (0.3) (0.1) (18.5) (15.3)

– other 8.0 – 7.7 4.6

bad debts written off trade debtors (0.9) (0.5)

rental expense – operating leases (0.9) (0.7) (29.8) (22.1)

net profit/(loss) on disposal of

– property, plant and equipment 0.1 0.1 2.2 (3.4)

– investments (0.1) – (1.0) –

net increment arising from the revaluation of

– property, plant and equipment – 6.8

foreign exchange gains, net of losses 7.4 13.4

dividends received from

– controlled entities – 380.0

– other related parties 0.4 0.6

– other investments 0.2 –

Note 4 Abnormal items 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

(tax effect nil unless stated otherwise)

Lensworth Group

– net profits on realisation of assets 6.9 9.6

– results (before interest) from other activities 8.5 14.0

recoveries of investments previously written off – 12.5 4.7 25.0

sale of shares 5.9 –

Effects on the Group’s profit share from the Molson Breweries Partnership of:

– restructuring and other costs (29.6) (38.2)

(tax benefit applicable – 1997 $10.1 million, 1996 $12.6 million)

– Coors settlement and related costs (37.4) –

(tax benefit applicable $13.1 million)

payment in relation to disputed assessment of stamp duties – (12.1)

Total abnormal items – 12.5 (41.0) (1.7)




Note 5 Income tax 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

The amount of income tax attributable to operating profit

as shown in the profit and loss statement differs from the

prima facie income tax expense attributable to operating profit.

The differences are reconciled as follows:

prima facie income tax expense attributable to operating profit

calculated at the rate of 36% 37.4 179.8 106.4 108.2

tax effect of

– non-recognition of future income tax benefits 16.1 43.1

– utilisation of previously unbooked FITB – (23.5) (14.3) (29.3)

– depreciation and amortisation not allowable 6.1 4.8

– rebateable dividends – (136.8) (0.1) (1.4)

– non-deductible expenditure and losses

(net of non-taxable income) (0.7) 1.9 0.4 11.6

– utilisation of available losses (36.6) (22.0) (66.0) (119.6)

– other (1.0) (0.3) (3.6) 0.6

foreign tax rate differential 4.8 (4.1)

effect of change in tax rate – (4.8)

under/(over) provisions in previous years (2.1) (0.6)

income tax expense/(benefit) per profit and loss statement (0.9) (0.9) 47.7 8.5

add/(less) income tax expense/(benefit) arising from items

taken to foreign currency translation reserve (refer note 18) (35.7) 34.9

Total income tax expense 12.0 43.4

Future income tax benefit

There are no potential future income tax benefits relating

to accumulated losses for income tax purposes and timing

differences in loss entities which have not been brought to

account (1996 $89.0 million).

Note 6 Cash 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

at bank, on hand and in transit – 2.4 49.1 64.5

on deposit 70.9 83.2

– 2.4 120.0 147.7



Note 7 Receivables 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Current

trade debtors 1.5 1.5 179.3 164.8

provision for doubtful debts (5.4) (5.3)

other debtors 0.8 0.5 117.9 137.1

provision for doubtful debts (17.5) –

loans to other persons – 0.1 12.0 27.8

provision for doubtful debts (7.6) (18.8)

employee share plan loans 0.3 0.1 0.3 0.1

amounts due from controlled entities 4,193.3 4,090.1

provision for doubtful debts (1,179.2) (1,179.2)

3,016.7 2,913.1 279.0 305.7

Non-current

other debtors 4.1 86.9

loans to directors of group entities 0.2 0.1 0.2 0.1

loans to other persons 42.5 27.2

provision for doubtful debts – (0.1)

employee share plan loans 4.9 2.8 4.9 2.8

5.1 2.9 51.7 116.9

Note 8 Inventories 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Current

finished goods at cost 85.8 112.4

raw materials and stores at cost 44.6 43.0

work in progress at cost 77.3 56.8

provisions for diminution (1.5) (1.2)

– – 206.2 211.0

Non-current

work in progress at cost 100.3 78.5

– – 100.3 78.5




Note 9 Investments 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Current

quoted shares – at cost 10.7 –

Non-current

Controlled entities

unquoted shares

– at directors’ valuation 1994 987.7 987.7

– at cost 112.5 9.8

Other

quoted shares at cost 1.3 33.7

unquoted shares in associates 473.9 978.1

provision for diminution – (448.9)

unquoted shares at cost 101.6 125.1

provision for diminution (7.0) (26.6)

unquoted options at valuation 26.8 23.5

other – at cost 0.1 –

interest in partnerships (refer note 1)

at cost 0.2 1.1 8.1 10.4

provision for diminution (0.5) (0.9)

at valuation 424.2 426.9

1,100.4 998.6 1,028.5 1,121.3

market value – quoted shares 23.6 66.0

Material investments in associates

Inntrepreneur Pub Company Limited (IPCL)

Ownership percentage: 50.0% (1996 50.0%).

The Group also holds 50.0% of IPCL’s preference

shares (1996 50.0%).

Principal activities:

Ownership and letting of licensed properties in the

United Kingdom.

Reporting date: 30 September.

The economic entity’s share of the results of IPCL:

1997 1996$m $m

Operating profit/(loss) before income tax

and abnormal items 2.1 7.0

Abnormal items – (22.4)

Income tax attributable to operating profit – –

Operating profit/(loss) after income tax 2.1 (15.4)

Amount of retained profits attributable to associates

At the beginning of the financial year (615.0)* (500.0)

At the end of the financial year (612.9) (500.0)

Amount of reserves attributable to associates

At the beginning of the financial year (97.6) (19.6)

At the end of the financial year (40.0) (97.6)

* Adjusted for application of equity accounting for the first time.

The 1996 information was included only as a note to the financial

statements.



Note 9 Investments (continued) 1997 1996 $m $m

Carrying amount of investment:

Book value at 30 June 1996 529.2 607.2

Adjustment on adoption of equity accounting (115.0) –

Equity carrying amount at 1 July 1996 414.2 607.2

Share of net profits for the year 2.1 –

Exchange movements 57.6 (78.0)

Book value at 30 June 1997 473.9 529.2

£m £m

Net carrying value (Sterling equivalent) 212.5 270.2

The principal assets and liabilities of IPCL and its controlled entities

(as included in unaudited accounts at 30 June 1997) consist of:

1997 1996$m $m

Freehold and leasehold properties

– at valuation September 1995 – 1,859.0

– at valuation September 1996 2,138.5 –

Cash 22.1 37.4

Borrowings (1,128.9) (986.3)

Other assets/(liabilities) (84.0) (81.7)

Net assets 947.7 828.4

£m £m

Net assets (Sterling equivalent) 425.0 423.0

1997 1996$m $m

The net profit/(loss) after income tax of

IPCL (based on unaudited accounts for

the year to 30 June 1997) is: 4.2 (30.8)

£m £m

Net profit/(loss) after income tax

(Sterling equivalent) 2.0 (15.1)

1997 1996$m $m

The economic entity’s share of the contingent

liabilities and capital commitments of IPCL

are as follows:

Contingent liabilities – –

Capital commitments 3.9 18.9

Other expenditure commitments 7.8 6.9

In respect of an IPCL £800 million bank funding facility,

the Group has undertaken, on an equal and several basis

with Grand Metropolitan plc to ensure that IPCL complies

with minimum loan to value ratio and interest cover covenants.

Details of other major investments

Molson Breweries Partnership

Ownership percentage: 40.0% (1996 40.0%)

Principal activities: Brewing, wholesale distribution of beer.

Contribution to Group result: loss of $7.5 million (before

taxes and other costs incurred by the Group as a partner)

(1996 profit of $23.4 million).

$m

Book value of interest:

Value at 30 June 1996 ($Can.459.4 million) 426.9

Share of operating profits 59.5

Share of abnormal items as per note 4 (67.0)

Distributions received (14.2)

Exchange movements 19.0

Value at 30 June 1997 ($Can 436.2 million) 424.2

The investment was revalued during the 1990 financial year

by the directors, based on their assessment of the underlying

net worth of the investment at that time. This valuation has

been retained, except to the extent of the movements shown

above, like movements for the years 1991 to 1996 and the

effect of the sale of a 10% partnership share in 1993.

The partnership is between a Foster’s Brewing Group (FBG)

controlled entity (40%), The Molson Companies Limited

(TMCL) (40%) and a Miller Brewing Company (Miller)

controlled entity (20%).

The principal assets and liabilities of the Partnership at its

last reporting date of 1 April 1997 (based on the audited

financial statements) were:

1997 1996$m $m

Inventories 108.8 117.0

Receivables (current) 111.4 109.6

Other current assets 36.7 41.4

Property, plant and equipment 964.2 922.8

Brand names 722.6 690.6

Investments 69.7 66.8

Other non-current assets 105.2 77.0

Accounts payable (current) (462.6) (303.3)

Borrowings (current) (30.8) (61.2)

Borrowings (non-current) (774.2) (777.3)

Employee benefit provision (78.8) (53.7)

Net assets 772.2 829.7




Note 9 Investments (continued) 1997 1996 $m $m

Represented by the common interest of:

FBG 299.2 332.0

TMCL 299.2 332.0

Miller 173.8 165.7

772.2 829.7

$Can.m $Can.m

Net assets (Canadian dollar equivalent) 794.2 892.9

In the period from 1 April 1997 to 30 June 1997, the net

assets increased to $A824.0 million, due principally to the

effect of undistributed net profit. FBG’s interest increased

to $A319.2 million.

The Foster’s Brewing Group financial statements include

its share of losses in the Partnership for the year to

30 June 1997.

FBG is contingently liable for TMCL’s and Miller’s share

of the liabilities of the Partnership, with the exception

of indebtedness which is non-recourse to the partners.

Total liabilities of the Partnership at 1 April 1997

(excluding the non-recourse debt) were $A541.4 million.

Employee benefit provisions have been included,

calculated in accordance with the requirements of AASB

1028 “Accounting for Employee Entitlements”. The above

summary of assets and liabilities also includes brand names

owned by the Partnership at cost. No amortisation of these

brand names is taken into account in the Group’s share

of Partnership results.

FBG has granted an option to TMCL to acquire a further

10% interest in the Partnership from FBG. This option may

be exercised at any time up to 2 April 2003 in the event that

FBG elects to sell its Partnership interest or at any time

during the twelve month period commencing 2 April 2003.

The price at which TMCL may acquire the 10% interest,

based on a predetermined formula incorporated in the

option agreement, exceeds the amount that such an interest

is reflected in the current book value of FBG’s investment.

Miller Brewing Company (Miller) has indicated that it may

have possible claims against Molson Breweries and/or its

partners related to Miller becoming a partner in Molson

Breweries and arising from Miller’s understanding of

arrangements with Coors Brewing Company and possible

claims related to obligations of Molson Breweries under the

licensing arrangement between Miller and Molson Breweries

with respect to the Miller brands in Canada. No legal

proceedings have commenced and the ultimate outcome

of these matters and related amounts are not determinable

at this time.



Note 10 Property, plant and equipment 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Land, buildings and improvements

Freehold

at directors’ valuation 1996 594.6 598.8

accumulated depreciation (6.5) –

at cost 127.8 –


Leasehold

at directors’ valuation 1996 4.0 4.2 51.3 51.6

accumulated depreciation (0.5) – (1.9) –

at cost 0.1 – 4.1 –


Vineyard improvements

at directors’ valuation 1996 67.2 67.2


at cost 4.8 –


projects in progress at cost 15.4 4.6

3.6 4.2 854.9 722.2

Plant and equipment

at directors’ valuation 1996 15.9 15.9 690.5 692.8

accumulated depreciation (1.2) – (50.1) –

at cost 1.2 – 142.7 –


under finance lease 6.6 9.3

accumulated amortisation (1.8) (1.0)

projects in progress at cost 66.3 107.0

15.9 15.9 844.3 808.1

19.5 20.1 1,699.2 1,530.3

Note 11 Intangibles 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

brand names, patents and licences at

– directors’ valuation 1994 668.6 669.2

– cost 210.1 218.7

goodwill at cost 158.9 148.9

accumulated amortisation (24.6) (15.5)

1,013.0 1,021.3




Portfolio Analysis Aust./Asia North America Total$m $m $m

Property 178.0 159.3 337.3 82%

Manufacturing 7.7 37.2 44.9 11%

Tourism 11.9 – 11.9 3%

Other 15.6 1.0 16.6 4%

Total portfolio 213.2 197.5 410.7

52% 48%

General provisions (88.5)

Net external assets 322.2

Note 12 Residual Lensworth assets 1997 1996 Consolidated$m $m

Current

receivables

– trade debtors 49.7 100.8

– provision for doubtful debts (19.3) (32.5)

– other debtors and prepayments 3.6 4.6


investments (at the lower of cost and net realisable value)

– unquoted shares 3.8 14.6

– provision for diminution (3.5) (3.1)

land and projects for development and resale

– cost of acquisition 72.0 13.7

– provision for losses on projects (2.0) (0.7)

other current assets 0.6 0.1

104.0 96.2

Non-current

receivables

– trade debtors 68.9 106.1


investments (at the lower of cost and net realisable value)

– quoted shares (market value 1997 $2.9 million, 1996 $6.5 million) 3.6 3.6


– unquoted shares 25.5 43.0


– interest in partnerships 43.6 56.4


land and projects for development and resale

– cost of acquisition 194.8 299.5

– development expenses 11.7 6.1

– provision for losses on projects (73.3) (73.3)

other non-current assets 0.1 0.1

218.2 338.2

Total residual Lensworth assets 322.2 434.4

Included in residual Lensworth assets are loans provided

under contractual arrangements, the terms of which could

require the Lensworth Group to provide additional funding

to a maximum of $9.7 million (1996 $8.8 million).

Under certain circumstances the Group will legally take

possession of property granted as security for a loan.

On taking title, the relevant property is classified under

“land and projects for development and resale” and is

carried at the lower of the net loan value and estimated

net realisable value.



Note 13 Other assets 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Current

prepayments 0.4 – 17.6 18.7

deferred expenses 0.6 0.8 6.8 13.8

properties held for sale at cost 12.8 –

properties held for sale at valuation 5.6 7.6

1.0 0.8 42.8 40.1

Non-current

future income tax benefit 3.2 2.3 45.9 36.3

deferred expenses 24.9 10.9

other – 0.8

3.2 2.3 70.8 48.0

Note 14 Accounts payable 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Current

trade creditors 10.7 5.7 219.1 257.3

other creditors 3.1 2.6 72.4 110.3

13.8 8.3 291.5 367.6

Non-current

other creditors 17.6 10.3




Note 15 Borrowings 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Current

lease liabilities 2.1 5.4

secured borrowings

– bank overdraft 0.3 1.2

– bank loans 13.6 2.7

– other 2.0 0.8

unsecured borrowings

– bank overdraft 2.9 0.5 8.6 6.1


– other 1.2 3.2

amounts due to controlled entities 1,223.0 909.0

1,225.9 909.5 72.6 47.1

Non-current

lease liabilities 2.8 3.0

secured borrowings


– other 0.7 0.2

unsecured borrowings

– bank loans 495.2 491.3

– other 677.2 638.2

– – 1,182.1 1,167.5

Total net borrowings (including lease liabilities) consist of:

current 2.9 0.5 72.6 47.1

non-current 1,182.1 1,167.5

Total gross borrowings 2.9 0.5 1,254.7 1,214.6

Less – cash (note 6) – (2.4) (120.0) (147.7)

Total net borrowings 2.9 (1.9) 1,134.7 1,066.9

Reconciliation of net borrowings

net borrowings/(cash) at the beginning of the financial year (1.9) (0.2) 1,066.9 1,579.2

proceeds from borrowings 1,775.6 2,417.8

repayment of borrowings (1,870.4) (2,780.9)

total cash flows from activities 4.8 (1.7) 43.1 (53.3)

debt acquired on consolidation of controlled entities 24.4 118.8

effect of exchange rate changes on foreign currency borrowings 95.1 (214.7)

net borrowings/(cash) at the end of the financial year 2.9 (1.9) 1,134.7 1,066.9

Secured borrowings (totalling $22.8 million) consist principally

of bank and other loans secured by mortgages over freehold

land and buildings.



Note 16 Provisions 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Current

dividends 102.5 117.7 102.5 117.7

taxation 55.0 25.3

employee entitlements 3.1 2.9 39.6 40.3

other 26.3 67.7

105.6 120.6 223.4 251.0

Non-current

deferred income tax 0.1 0.1 192.4 218.8

employee entitlements 0.1 0.2 14.7 10.0

other – 8.0 52.5 38.6

0.2 8.3 259.6 267.4

Note 17 Share capital 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Issued and paid-up capital

1,962,762,711 (1996 1,961,463,111)

ordinary fully paid shares of $1 each 1,962.8 1,961.5 1,962.8 1,961.5

41,405,538 (1996 41,405,538) employee shares

of $1 each paid to 1.67 cents 0.7 0.7 0.7 0.7

1,963.5 1,962.2 1,963.5 1,962.2

Ordinary shares

Capital reconstruction

On 23 October 1995, the shareholders of Foster’s Brewing

Group Limited approved the reconstruction of the

Company’s share capital, effective as of 1 July 1995.

This reconstruction was confirmed by the Supreme

Court of Victoria on 10 November 1995.

The capital reconstruction resulted in the par value of all

of the Company’s ordinary shares being reduced by 40 cents

from $1.00 to 60 cents per share. This reduced issued

capital by $1,306.7 million (consolidated and chief entity).

Of this amount, $1,303.5 million (consolidated and chief

entity) was applied in writing off the accumulated losses

of Foster’s Brewing Group Limited, the chief entity, and the

balance of $3.2 million (consolidated and chief entity) was

credited to a Capital Reconstruction Reserve.

Following this reduction in the par value of the Company’s

ordinary shares, the par value of the ordinary shares was

increased to $1.00 by a consolidation of shares in which

every five shares of 60 cents each was consolidated to

become three shares of $1.00 each.

Fractions of shares created by the three for five reduction

were rounded up, resulting in the issue of the equivalent

of a further 16,434 shares.

Included in total other provisions are contingency and other

provisions related to the Lensworth Group of $26.6 million

(including provisions for future operating costs and workout

costs totalling $11.3 million); and provisions for

contingencies related to Courage assets not sold

to Scottish & Newcastle plc ($22.7 million).

The aggregates of provisions for employee entitlements

as shown above are $54.3 million, consolidated

(1996 $50.3 million), and $3.2 million,

FBG Limited (1996 $3.1 million).




Note 17 Share capital (continued)

Share buy-back

On 5 June 1997, The Broken Hill Proprietary Co. Ltd.

(BHP) entered an agreement for the placement of 616.6

million shares valued at $1.54 billion to a broad spread of

institutional and retail investors. On the same day, Foster’s

Brewing Group Limited entered into a buy-back agreement

with Asahi Beer International Holding (Australia) Ltd.

(Asahi) for the purchase of 254.5 million shares.

The effective buy-back price of $2.46 per share was

equal to the net price received by BHP from its placement

of shares.

On 24 July 1997, shareholders approved the buy-back

of 254.5 million shares for $625 million from Asahi

representing 13% of the Group’s fully paid shares on issue.

The buy-back was completed on 31 July 1997.

FBG Employee Share and Option Plan

Ordinary Shares

On 23 October 1995, the shareholders approved the FBG

Employee Share and Option Plan (the Plan). Under the

terms of the Plan, permanent employees of the Group’s

controlled entities, who have completed one year’s service,

are eligible to participate in the Plan. It is the present

intention of the directors that in any year in which an offer

of shares is made, an equal number of shares be offered

to all participating employees. An offer of shares is at

the discretion of the directors and is subject to

performance criteria.

The issue price of the shares will usually be the weighted

average of the prices at which shares in the Company are

traded on the Australian Stock Exchange during the one

week period before the time of allotment. Employees may

pay the issue price, in whole or in part, from their own

resources or alternatively the Company arranges an interest

free loan to fund the issue price of the shares. Repayment of

loans is by way of dividends and voluntary repayment by

employees. If an employee ceases to be employed by the

Group, the whole outstanding loan must be repaid

(Refer note 32).

During the year, 1,299,600 fully paid ordinary shares were

issued pursuant to the Plan to 1,326 employees of the

Group’s Australian and New Zealand operating companies.

Share Options

On issue at reporting date were options over 14,340,000

unissued ordinary shares, issued under the Foster’s

Employee Share Plan, exercisable in three equal tranches in

September of 1998, 1999 and 2000. These options can only

be exercised if the last sale price of the Company’s shares on

the Australian Stock Exchange reaches or exceeds on any

five consecutive business days during the twelve months

preceding the time of exercise $2.82 in respect of the

options expiring in 1998, $3.08 in respect of the options

expiring in 1999 and $3.40 in respect of the options

expiring in 2000.

Options over 900,000 unissued ordinary shares were issued

during the year at an exercise price of $2.36 per share.

Options over 13,440,000 unissued ordinary shares were

previously issued in 1996 at an exercise price of $2.12

per share.

Employee shares

36,002,769 (1996 35,989,149) of these shares are held by

Group Superannuation Funds in their capacity as Approved

or Plan Transferees under the chief entity’s employee share

plans. A call in respect of these shares may only be made at

the request of the holder or in the event of a call being made

by a liquidator or receiver.

The remaining 5,402,769 (1996 5,416,389) shares are held

on behalf of employees and former employees of the Group.

A call in respect of these shares may be made at the request

of the holder or in the event of a call being made by a

liquidator or receiver. A call may also be made in respect

of these shares following the relevant employee ceasing

to be an employee of the Group, provided that the market

price of a fully paid ordinary share in the capital of the chief

entity has exceeded the issue price of the relevant partly

paid share for a period of not less than forty consecutive

business days. A call made following an employee ceasing

to be an employee of the Group will be cancelled if the

shares are transferred to an Approved or Plan Transferee

before the call falls due.

No partly paid shares were issued during the year.



Note 18 Reserves 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

capital redemption reserve 3.3 3.3 6.0 6.0

capital reconstruction reserve 3.2 3.2 3.2 3.2

asset revaluation reserve 3.3 3.3 343.0 343.7

share premium reserve – ordinary 638.7 637.1 639.6 638.0

foreign currency translation reserve (146.6) (137.0)

648.5 646.9 845.2 853.9

Details of movement

Asset revaluation reserve

opening balance 3.3 3.4 343.7 343.7

net devaluation of assets – (0.1)

write down of previously revalued assets (0.7) –

closing balance 3.3 3.3 343.0 343.7

Share premium reserve – ordinary

opening balance 637.1 635.4 638.0 636.3

issue of shares – employee share plan 1.6 1.7 1.6 1.7

closing balance 638.7 637.1 639.6 638.0

Foreign currency translation reserve

opening balance (137.0) (90.7)

transfer to retained profits/accumulated losses (28.0) (16.5)

translation gain/(loss) on investment in foreign controlled

entities, net of hedging and after allowing for a related income

tax benefit of $35.7 million (1996 expense $34.9 million)

– refer also note 5 18.4 (29.8)

closing balance (146.6) (137.0)

Note 19 Outside equity interest in controlled entities 1997 1996 Consolidated$m $m

share capital 32.7 30.8

retained profits/(accumulated losses) (5.7) (1.3)

reserves 9.4 9.1

36.4 38.6




Note 20 Earnings per share 1997 1996 Consolidated

Basic earnings per share (cents) based on operating profit after

income tax attributable to members of the chief entity

before abnormal items 13.7 14.4

after abnormal items 12.8 15.0

Weighted average number of ordinary shares on issue used in the

calculation of basic earnings per share (in thousands) 1,962,136 1,960,786

Note 21 Dividends 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

The amount of dividends that have been or

will be franked (tax rate of 36%) 51.2 – 51.2 –

The amount of dividends that have not been

or will not be franked 149.4 215.8 149.4 215.8

Dividends paid or provided for 200.6 215.8 200.6 215.8

The franked portion of proposed dividends will be franked out of

existing franking credits or out of franking credits arising from the

payment of income tax in the period subsequent to 30 June 1997.

Amount of franking credits at reporting date available for use in

subsequent years, after adjusting for income tax payable and

dividends proposed 62.6 39.9 62.6 39.9

Based on conditions at 30 June 1997, the potential ordinary

shares of FBG Limited that are dilutive is assessed to be

immaterial. Diluted earnings per share is therefore not

materially different from basic earnings per share.

There have been, to date, no conversions to, calls of, or

subscriptions for ordinary shares or issues of potential

ordinary shares since 30 June 1997.



Note 22 Remuneration of directors and executives 1997 1996FBG Limited$’000 $’000

Directors

Aggregate of income received, or due and receivable, by directors

of FBG Limited from any Group entity (including contributions to

superannuation funds and amounts paid for redundancy and

retirement benefits). This amount includes fees of $760,000

(1996: $791,000) received by non-executive directors of FBG Limited. 5,156 2,739

1997 1996FBG Limited

Number of directors of FBG Limited whose total income was within

the following bands:

$

1 – 10,000 2 –

10,001 – 20,000 1 1

20,001 – 30,000 3 –

40,001 – 50,000 1 –

50,001 – 60,000 1 1

60,001 – 70,000 3 1

70,001 – 80,000 3 3

80,001 – 90,000 – 3

90,001 – 100,000 – 1

100,001 – 110,000 1 –

110,001 – 120,000 1 –

130,001 – 140,000 1 –

140,001 – 150,000 – 1

150,001 – 160,000 – 1

220,001 – 230,000 1 –

490,001 – 500,000 1 –

1,620,001 – 1,630,000 1 –

1,730,001 – 1,740,000 – 1

1,840,001 – 1,850,000 1 –

21 13

1997 1996 Consolidated$’000 $’000

Aggregate of income received, or due and receivable, by directors of

all Group entities (including contributions to superannuation funds

and amounts paid for redundancy and retirement benefits).

This amount represents the total income of 168 (1996 – 150)

Group entity directors, including overseas residents, and consists

predominantly of fixed salaries. 28,157 23,673

Included in the 1997 remuneration and banding disclosures

above are amounts paid and payable to eight former directors

in respect of legal proceedings totalling $2,563,369. These

amounts are shown gross of contributions of $1,000,000

received by the Group from third parties. Further amounts

that may be payable are not currently determinable.




Note 22 Remuneration of directors and executives (continued) 1997 1996 1997 1996 FBG Limited Consolidated$’000 $’000 $’000 $’000

Directors’ remuneration has been calculated in accordance with the Urgent

Issues Group Abstract 14, “Directors’ Remuneration”, which outlines specific

items to be included in determining remuneration.

Remuneration now includes notional superannuation amounts during a

contribution holiday and an estimated value for options granted over

unissued shares in the Company both of which were previously not included.

The effect of this change on the 1997 figures is an increase of $441,000

(parent) and $3,386,000 (Group). Comparatives have been restated.

Executives – domiciled in Australia

Aggregate of income received, or due and receivable, from any Group entity

by executive officers of FBG Limited whose income is more than $100,000

(including contributions to superannuation funds and amounts paid for

redundancy and retirement benefits). 8,867 8,542

Aggregate of income received, or due and receivable, by executive officers

of Group entities whose income is more than $100,000 (including

contributions to superannuation funds and amounts paid for redundancy

and retirement benefits). 18,325 15,199

Numbers of executive officers whose total income was more than $100,000

are shown within the following bands:

1997 1996 1997 1996 FBG Limited Consolidated

$

100,001 – 110,000 2 – 2 1

110,001 – 120,000 1 1 1 3

120,001 – 130,000 – – 2 2

130,001 – 140,000 1 – 4 –

140,001 – 150,000 – 1 2 3

150,001 – 160,000 1 1 1 3

160,001 – 170,000 – 1 3 1

170,001 – 180,000 1 2 3 2

180,001 – 190,000 – 1 – 2

190,001 – 200,000 1 1 1 1

200,001 – 210,000 – 2 – 4

210,001 – 220,000 1 1 2 2

220,001 – 230,000 1 – 2 2

230,001 – 240,000 1 – 4 –

240,001 – 250,000 – – 1 –

250,001 – 260,000 1 – 1 –

260,001 – 270,000 – – 1 3

270,001 – 280,000 – – 1 –

280,001 – 290,000 – 2 1 2

(continued next page)



Note 22 Remuneration of directors and executives (continued) 1997 1996 1997 1996 FBG Limited Consolidated

Numbers of executive officers whose total income was more than $100,000

are shown within the following bands: (continued)

$

290,001 – 300,000 – – 1 1

300,001 – 310,000 1 – 3 1

310,001 – 320,000 1 – 1 –

320,001 – 330,000 – 1 1 4

330,001 – 340,000 1 – 1 –

340,001 – 350,000 – 1 – 1

360,001 – 370,000 1 – 5 –

390,001 – 400,000 1 – 1 –

400,001 – 410,000 – – 1 –

410,001 – 420,000 – – – 1

440,001 – 450,000 1 – 1 –

460,001 – 470,000 – – 1 –

480,001 – 490,000 – – 1 –

600,001 – 610,000 – 1 1 1

620,001 – 630,000 1 – 1 –

640,001 – 650,000 – – – 1

740,001 – 750,000 1 – 1 –

750,001 – 760,000 – – 1 1

770,001 – 780,000 – 1 – 1

880,001 – 890,000 – 1 – 1

1,340,001 – 1,350,000 – 1 – 1

1,620,001 – 1,630,000 1 – 1 –

1,730,001 – 1,740,000 – 1 – 1

1,790,001 – 1,800,000 1 – 1 –

21 20 55 46

Executives’ remuneration has been calculated in

accordance with the Urgent Issues Group Abstract 14,

“Directors’ Remuneration”, which outlines specific items

to be included in determining remuneration.

Remuneration now includes notional superannuation

amounts during a contribution holiday and an estimated

value for options granted over unissued shares in the

Company both of which were previously not included.

The executives referred to are the president, executive

vice-presidents and senior vice-presidents and those

directly accountable and responsible to these positions

for the strategic direction and operational management

of the Group and are domiciled in Australia.

The corresponding disclosure in the 1996 annual report

included all employees whose remuneration

exceeded $100,000.

The net effect of the above changes on the 1997 figures

has been to reduce the number of executives by 6 (parent)

and 145 (Group) and remuneration by $120,000 (parent)

and $19,499,000 (Group). Comparatives have

been restated.




Note 23 Auditors’ remuneration 1997 1996 1997 1996 FBG Limited Consolidated$’000 $’000 $’000 $’000

Amounts received, or due and receivable, by

the auditors for auditing the financial statements

– auditors of FBG Limited 578 484 1,431 1,414

– associated firms of FBG Limited auditors 529 599

– other auditors 84 87

Amounts received, or due and receivable, by

the auditors for other services

– auditors of FBG Limited 3,750 4,069 4,333 5,301

– associated firms of FBG Limited auditors 291 – 1,808 3,100

– other auditors – 50

Note 24 Commitments 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Leases

Finance leases

expenditure contracted and provided for in the financial statements

– under 1 year 2.4 6.3

– between 1 and 2 years 1.5 2.5


total commitments 5.8 9.8

less future finance charges (0.9) (1.4)

finance lease liabilities 4.9 8.4

current (note 15) 2.1 5.4

non-current (note 15) 2.8 3.0

4.9 8.4

Non-cancellable operating leases

expenditure contracted but not provided for in the financial statements

– under 1 year 0.4 0.4 29.0 28.8

– between 1 and 2 years 0.3 0.2 23.3 26.6

– between 2 and 5 years 0.2 0.2 41.4 45.4

– over 5 years 46.2 47.9

total commitments 0.9 0.8 139.9 148.7



Note 24 Commitments (continued) 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Capital expenditure and other commitments

The following expenditure has been contracted

but not provided for in the financial statements.

Capital expenditure

– under 1 year 15.3 13.2

Other commitments

– under 1 year 7.9 10.6



11.3 13.5

Note 25 Contingent liabilities 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Arising in respect of individual Group entities:

amounts uncalled on shares in controlled entities 698.1 698.1

claims 0.5 0.6

Arising in respect of related bodies corporate:

guarantees

– banks and other financiers 1,262.2 1,242.9 – 12.7

Arising in respect of other persons:

guarantees

– banks and other financiers 6.9 4.8

– other persons 2.3 23.8 13.1 35.0

retirement benefits payable on termination in certain circumstances,

under service agreements with executive directors and other

persons who take part in the management of the company 9.0 9.7 11.5 12.0

EFG Australia Limited (EFG) and ELFIC Limited (ELFIC)

are being sued by Linter Group Limited (In Liquidation)

(Linter). The claim against the companies arises out

of two short-term loan transactions. It is alleged that these

transactions facilitated some Linter directors in giving a

false representation of the financial affairs of Linter, thereby

enabling it to obtain fresh loans and incur further trading

losses. Linter is also suing its auditors Price Waterhouse.

As a consequence, there are separate proceedings by Price

Waterhouse against EFG and by EFG and ELFIC against

Price Waterhouse, the substance of which is that each seeks

to pass the claim on to the other. Each of these claims is

in a preliminary phase. However, EFG and ELFIC have been

advised that, based on information available to date, the

claims should fail. EFG and ELFIC have denied liability for

the claims and are vigorously defending the proceedings.

Various entities in the Group are party to other legal

actions which have arisen in the ordinary course of business.

The actions are being defended and the directors believe

no material losses will arise.


Notes to the financial statements(continued)


The Group operates predominantly in the Beverage industry

which includes the production and marketing of alcoholic

and non-alcoholic beverages and a major investment in

licensed properties.

In addition to the above-mentioned operating activity, the

Group is continuing with the divestment and wind down of

Lensworth’s residual assets and other equity investments.

The profit result (before interest) of the Lensworth segment

is included in abnormal items. Refer also note 4.

Note 26 Segment resultsTotal assets at year end Net external Operating profit

operating revenue before income tax

1997 1996 1997 1996 1997 1996$m $m $m $m $m $m

Industry segments

Brewing

– Carlton 2,371.5 2,249.2 1,799.1 1,696.9 364.1 326.6

– Molson 425.5 442.0 568.7 565.8 58.8 61.4

– Foster’s China 172.2 164.4 45.1 35.5 (19.0) (17.4)

– International 6.6 – 33.2 – (3.2) –

2,975.8 2,855.6 2,446.1 2,298.2 400.7 370.6

Mildara Blass Wines 783.8 737.9 216.2 73.3 57.2 16.1

Residual Lensworth assets 321.3 434.4 53.3 77.0 – –

Corporate and other investments 863.5 1,027.3 64.3 87.3 (31.1) (23.2)

Net interest expense (90.1) (61.3)

Abnormal items (41.0) (1.7)

4,944.4 5,055.2 2,779.9 2,535.8 295.7 300.5

Geographical segments

Australia/Pacific/Asia 3,720.6 3,606.6 2,180.9 1,897.8 328.5 292.0

UK/Europe 621.9 769.5 9.6 35.9 (21.1) (3.9)

Canada/USA 601.9 679.1 589.4 602.1 (11.7) 12.4

4,944.4 5,055.2 2,779.9 2,535.8 295.7 300.5



Note 27 Superannuation commitments

Date of lastFund Benefit type Basis of contribution actuarial valuation Actuary

Foster’s Brewing Group Defined Benefit Balance of cost June 1996 R.S. Mitchell

Superannuation Fund Lump sum FIA, FIAA, ASA

Carlton and United Breweries Accumulation Defined contribution Not applicable Not applicable

Employees’ Superannuation Scheme Lump sum

The Group has established a number of retirement funds

which provide either defined or accumulation type benefits

for employees within the Group, worldwide.

The benefits under the funds are provided from

contributions by employee members and entities in the

Group and income from fund assets invested. The members’

contributions are at varying rates while contributions from

Group entities, in respect of defined benefit funds, are made

at levels necessary to ensure that these funds are maintained

with sufficient assets to meet their liabilities and, in respect

of accumulation funds, are at fixed rates. The rate of

contributions by Group entities, for defined benefit funds, is

determined by actuarial valuations, which are carried out at

regular intervals not exceeding three years.

Group entities are obliged to contribute to these funds

as set out in the relevant Trust Deeds or in accordance

with industrial agreements or legislation, subject to their

right to reduce, suspend or terminate contributions

as specified in the relevant Trust Deeds.

Based on the latest actuarial valuations, the assets of

all funds are materially sufficient to satisfy all benefits that

would have vested in the event of their termination or in

the event of the voluntary or compulsory termination of

employment of each employee. The assets of the funds

are not included in these financial statements.

The major funds, being those with assets in excess of

$20 million, are:




Note 27 Superannuation commitments (continued) 1997 1996 Consolidated$m $m

The Group sponsors four defined benefit superannuation plans.

The accrued benefits, fund assets at net market value and

vested benefits of the only material fund and the aggregate

of all defined benefit funds are:

Foster’s Brewing Group Superannuation Fund

Fund assets at 30 June 166.1 150.4

Accrued benefits at 30 June (120.2) (110.2)

Excess of fund assets over accrued benefits 45.9 40.2

Vested benefits 117.4 109.9

Employer contributions to the fund 0.6 2.2

Employer contributions payable to the fund – –

Aggregate totals

Fund assets at 30 June 178.0 161.1

Accrued benefits at 30 June (129.0) (117.6)

Excess of fund assets over accrued benefits 49.0 43.5

Vested benefits 126.0 117.1

Employer contributions to the fund 0.6 2.2

Employer contributions payable to the fund – –

Fund assets, accrued benefits and vested benefits for

the above funds are as at 30 June 1997, except for an

immaterial fund where estimates as at 30 June 1997

have been used.

The Group is not aware of any material adverse movements

in the financial position of those funds since the last

actuarial valuations.

Accrued benefits are benefits which the fund is presently

obliged to pay at some future date, as a result of the

membership of the fund.

Vested benefits are member entitlements which are not

conditional upon the continued membership of the fund

and are payable on resignation from the fund.

Note 28 Notes to the statement of cash flows 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Reconciliation of cash

For the purpose of the statement of cash flows, cash includes

cash at bank, on hand, in transit and on short-term deposit, and

investments in money market instruments, net of outstanding

bank overdrafts. Cash at the end of the financial year as shown

in the statement of cash flows is reconciled to the related items

in the balance sheet as follows:

cash at bank, on hand and in transit (note 6) – 2.4 49.1 64.5

cash on deposit (note 6) 70.9 83.2

bank overdrafts (note 15) (2.9) (0.5) (8.9) (7.3)

(2.9) 1.9 111.1 140.4


Note 28 Notes to the statement of cash flows (continued) 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Reconciliation of net cash flows from operating activities

to operating profit after income tax

operating profit after income tax 104.6 500.2 248.0 292.0

depreciation and amortisation 1.8 1.7 80.8 64.7

cash withdrawn in excess of partnership income 21.7 39.5

(profit)/loss on sale of property, plant and equipment 0.1 (0.1) (13.3) 3.3

recoveries of investments previously written off – (25.0)

provisions 0.3 0.1 8.7 10.6

movement in unrealised foreign exchange (10.8) 22.7

change in working capital net of effects from

acquisition/disposal of controlled entities

– receivables (122.8) (231.2) 11.3 39.7

– inventories (16.9) (38.6)

– other assets 0.9 (0.9) (29.7) (22.7)

– accounts payable 5.6 11.0 (48.1) (34.8)

– provisions (8.0) (0.5) 5.3 (120.6)

other (1.0) (0.5) (1.5) (9.4)

net cash flows from operating activities (18.5) 279.8 255.5 221.4

Entities acquired

Consideration paid and accrued

cash – for share capital 46.2 512.0

share capital acquired in prior years 16.4 –

accrued – 21.2

62.6 533.2

Net assets acquired

cash 1.8 0.8

receivables 1.0 52.8

inventories 0.4 134.5

property, plant and equipment 85.3 218.8

intangibles – 218.6

accounts payable (1.1) (40.9)

borrowings (26.2) (119.6)

provisions (3.9) (19.5)

other 5.3 7.0

62.6 452.5

outside equity interest acquired (0.1) (4.1)

goodwill acquired – 84.8

cash contributed by joint venture partner 0.1 –

62.6 533.2

cash consideration 46.2 512.0

less: net cash balances acquired (1.8) (0.8)

44.4 511.2





Note 28 Notes to the statement of cash flows (continued) 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

Entities disposed of

Consideration

cash – 900.6

deferred receivable – 229.7

investments – 25.4

– 1,155.7

Net assets disposed of

cash – 7.8

receivables – 657.1

inventories – 123.1

property, plant and equipment – 973.6

accounts payable – (577.2)

borrowings – (2.4)

provisions – (48.2)

other assets and investments – 21.9

– 1,155.7

profit on disposal – –

– 1,155.7

cash consideration received – 900.6

less: net cash balances disposed of – (7.8)

– 892.8

No material entities were disposed of during 1997. The net assets

disposed of in 1996 relate to the Courage brewing business.

Note 29 Standby arrangements and unused credit facilities 1997 1996 Consolidated$m $m

Committed arrangements/facilities available to the Group:

Arrangements to provide standby funds and/or support facilities 1,812.9 1,679.6

Amounts utilised 600.9 639.5

Amount of credit unused 1,212.0 1,040.1

Details of major arrangements are as follows:

Bank loans

Total facilities are $1,796.9 million ($1,212.0 million unused),

of which facilities totalling $1,524.2 million have maturity

dates beyond June 2001. The facilities are reviewable

annually for further extension by mutual agreement.



Note 30 Derivative financial instruments

Treasury operations, which have responsibility for

the management of derivative financial instruments,

are conducted in accordance with the policies of the Group’s

Treasury Charter which has been approved by the Foster’s

Brewing Group Limited Board of Directors. This Treasury

Charter sets out the policies with respect to internal

controls (including segregation of duties), organisational

relationships, functions, delegated authority levels,

management of foreign currency and interest rate exposures

and counterparty credit limits and requires regular reporting

to the Board of Directors of, inter alia, exposure

to derivative financial instruments.

In particular, the Treasury Charter sets parameters for the:

– mix of fixed/floating interest rates and expressly limits

the types of derivative financial instruments which may

be utilised to manage the Group’s exposure to interest

rate fluctuations

– level of the Group’s exposure to any one foreign currency

and the aggregate level of the Group’s exposure to foreign

currency risk

– types of derivative financial instruments which may be

utilised to hedge the Group’s foreign currency exposures.

Interest Rate Risk

The Group enters into interest rate swaps, forward rate

agreements and interest rate options to mitigate the Group’s

risk against rising interest rates. With interest rate swaps,

the Group agrees with other parties to exchange interest

obligations from floating rate to fixed rate or fixed rate

to floating rate, as the case may be, calculated by reference

to an agreed notional principal amount. Forward rate

agreements are used to enable the Group to fix the rates for

future interest commitments. Interest rate options are used

to limit the Group’s exposure on its floating interest rates.

Foreign Exchange Risk

Forward foreign exchange contracts, foreign currency

swaps and foreign currency options are entered into

to hedge the Group’s net assets and transactions

denominated in foreign currencies.

Counterparty Credit Risk

The Group deals only with prime financial institutions

in respect of, inter alia, the entering into of derivative

financial instruments to manage its exposures to fluctuations

in interest and exchange rates. Credit limits

for each counterparty are approved annually by the

Foster’s Brewing Group Limited Board of Directors.

Summary of Gross Value of Derivative Financial Instruments

The table which follows sets out the principal types of

derivative financial instruments used by the Group in

relation to management of interest rate and foreign

exchange exposures and whether such exposures are

notional or actual.

The amounts shown as notional represent the notional

principal related to interest rate swaps, options and forward

rate agreements.

The amounts shown as actual represent the amounts

of one currency exchanged or to be exchanged for another

currency with external parties. It therefore represents

the extent to which the Group is potentially exposed to

the risk of loss through non-performance of external parties.

The Group manages this risk through the establishment

of credit limits for each external party (see Counterparty

Credit Risk above).




Note 30 Derivative financial instruments (continued)Amount – $A Equivalent

Actual Notional Actual Notional1997 1997 1996 1996$m $m $m $m

interest rates

– interest rate swaps – 913.8 – 847.3

– interest rate options – 509.2 – 150.0

– forward rate agreements – 100.0 – 100.0

exchange rates

– cross currency interest rate swaps 1,119.8 – 1,030.4 –

– interest rate swaps – 268.2 – 253.3

– foreign exchange contracts 323.1 – 740.5 –

1,442.9 1,791.2 1,770.9 1,350.6

All the above derivative financial instruments relate to the hedge

of actual and/or contingent exposures to interest rate or exchange

rate fluctuations.

Note 31 Foreign currency receivables and payables 1997 1996 1997 1996 FBG Limited Consolidated$m $m $m $m

The Australian dollar equivalents of balances denominated in

currencies other than the domestic reporting currency of each

relevant controlled entity, which are not hedged or not effectively

hedged at reporting date.

Receivables – current

– United States dollars 1.3 1.5



Note 32 Related party disclosures 1997 1996 1997 1996 FBG Limited Consolidated$’000 $’000 $’000 $’000

Directors

The following persons held the position of director of Foster’s

Brewing Group Limited during the financial year:

Messrs. J.F.H. Clark, G.A. Cohen, G.C. Evans, B. Healey, F.G. Hilmer,

P.E. Jeans, E.T. Kunkel, J.E. Lewis, S. Oishi, J.T. Ralph, F.J. Swan,

E. Yonenaga and D.R. Zimmerman

Director-related transactions

In accordance with the terms of the FBG Employee Share and Option

Plan, the Company issued fully paid shares and provided financial

assistance for the purpose of the acquisition of shares to employees,

some of whom are directors of Group Companies.

Aggregate of loans made to directors during the year:

– share plan loans 105 103 105 103

Aggregate of repayments received from directors during the year:

– share plan loans 14 4 14 4

– other loans – 1

Share Plan loans were made to and repayments (by way of

offset of dividend entitlements) received from the following

executive directors of Group companies. (There were

no allocations to non executive directors under the FBG

Employee Share and Option Plan nor were there loans

to such directors.)

Messrs. R E Beker, P A Bobeff, J F Bresnan, M P Brooks,

L J Bullock, M J Burslem, V T Cain, M A Christophersen,

D M Coelho, G S Cook, K E Criswick, B J Croarken,

P R Dale, N A D’Aquino, M V Dean, R K Dudfield,

B M Dunham, B D Elliott, M P Forness, A A Gardner,

R L Gascoigne, K J Gittoes, D M Hall, R C Holden,

W Holmes, J M Hore, N L Jago, A Jefferies, A J Kemp,

H L King, E T Kunkel, R P Lal, K M Lambert,

K McNairn, M Miles, J J Murphy, K R Murphy,

C J O’Dwyer, J F O’Grady, T L O’Hoy, M F Pelly,

A C Quinn, G D Rankin, K P Robinson, J T Ryan,

D M Smith, I D F Smith, R J Smith, S T Tan, P J Turner,

R G Willersdorf, C D Willis, S J M Wilson

In accordance with the requirements of the Australian Stock

Exchange Listing Rules, shareholders at the 1995 Annual

General Meeting approved the following transactions

concerning Mr E T Kunkel, the President and Chief

Executive Officer and a director of the Company:

– purchase of 1,000 shares of $1.00 each pursuant to the

terms and conditions of the FBG Employee Share and

Option Plan and the making of a loan for the purchase

of the shares on the same terms and conditions available

for all other employees of the Company. Refer note 17.

– grant to FBG Incentive Pty. Ltd., as trustee for Mr Kunkel,

an option to subscribe for 3,600,000 ordinary shares of

$1.00 each. Full details of the terms and conditions of

the options are included in note 17.

During the year, Mr Kunkel purchased 1,000 ordinary

shares of $1.00 each pursuant to the terms and conditions

of the FBG Employee Share and Option Plan and received

a loan for the purchase of the shares on the same terms and

conditions available to all other employees of the Company.




Note 32 Related party disclosures (continued) 1997 1996 1997 1996 FBG Limited Consolidated

Aggregate number of ordinary shares in the chief entity held by

directors of FBG Limited and their director-related entities at year end 418,514 391,918

Other than transactions arising from the FBG Employee Share and

Option Plan, the above transactions were conducted on terms and

conditions no more favourable than those offered to other shareholders

of FBG Limited.

Amounts receivable and payable $’000 $’000 $’000 $’000

Amounts receivable at reporting date from directors

– current – share plan loans 10 5 10 5


– non-current – share plan loans 184 94 184 94


other related parties

– current 8,240 35,887

– non-current 13,390 12

Other than Employee Share Plan Loans, which are interest free, all the

abovementioned loans to directors were made to Group employees who are

directors of Group entities and have been made on a commercial basis

with the interest rates applicable being determined by reference to market rates.

Amounts payable at reporting date to other related parties

– current 1,090 781

– non-current 118 118

Other transactions of executive directors of controlled

entities and their director-related entities

A director-related entity of Mr R C King supplied wine grapes

to Mildara Blass Limited under that company’s standard grape

purchase contract. The total amount of the purchases brought

to account was $559,000.

A director-related entity of Messrs J Lynch and

V A Ravindran was paid fees totalling $3,274,000 for

provision of management and consulting services to Group

companies in the United States of America.

The above transactions were made on commercial terms

and conditions and at market rates.

In addition, FBG Limited and the Group entered into the

following transactions which are insignificant in amount,

with directors and their director-related entities within normal

employee, customer or supplier relationships on terms and

conditions no more favourable than those available in similar

arm’s length dealings: payments of salaries and benefits,

reimbursement of expenses claimed on company business,

purchase of Group products and provision of other services.

Ownership interests in related parties

All material ownership interests in related parties

are disclosed in note 9 to the financial statements.

Transactions with related parties

Material transactions with related parties during the year,

in addition to investment activities disclosed in note 9 were:

– supply agreement payments to Inntrepreneur Pub Company

Limited (a 50% owned associate) of $25.4 million (1996

$22.1 million)

Transactions with entities in the wholly-owned Group

FBG Limited advanced and repaid loans and provided

management, accounting and administrative assistance

to other entities in the wholly-owned Group during the year.

With the exception of some interest free loans provided by

FBG Limited and transfer of the benefit of income tax losses

for no consideration between Group companies,

these transactions were on commercial terms and conditions.


The FBG Group has a 100% ownership interest in the following entities for the current and the prior year except where noted:

Country of Incorporation


Airport Trinity Inc. 2 U.S.A.

Alagon Pty. Ltd. 3,6 Australia

Alagon Unit Trust 6 Australia

Aldershot Nominees Pty. Ltd. 3,6 Australia

ALH (Victoria) Pty. Ltd. 3 Australia

ALH (WA) Pty. Ltd. 3 Australia

ALH Group Pty. Ltd. Australia

Alston Glen Pty. Ltd. Australia

Amayana Pty. Ltd. Australia

AML&F Holdings Limited Australia

Anglemaster Limited England

Arnade Pty. Limited 3 Australia

Ashwick (NT) No. 2 Pty. Ltd. 3 Australia

Ashwick (NT) No. 7 Pty. Ltd. 3 Australia

Ashwick (Qld.) No. 1 Pty. Ltd. 3 Australia























Ashwick (Vic.) No. 15 Pty. Ltd. 3 Australia






Asmur Pty. Limited Australia

Australian Estates Ltd. Australia

Australian Leisure and Hospitality Group Pty. Ltd. 3 Australia

Australian, Mercantile, Land and Finance Company, Limited Australia

Australian, Mercantile, London Limited England

Avilock Limited Australia

B.B.C. (Waurn Ponds) Pty. Ltd. 1,3,6 Australia

B.B.C. Hotels (Bendigo) Pty. Ltd. 1,3,6 Australia

B.B.C. Hotels (Brooklyn) Pty. Ltd. 1,3,6 Australia

B.B.C. Hotels (Campbellfield) Pty. Ltd. 1,3,6 Australia

B.B.C. Hotels (Deer Park) Pty. Ltd. 1,3,6 Australia

B.B.C. Hotels (Echuca) Pty. Ltd. 1,3,6 Australia

B.B.C. Hotels (Operations) Pty. Ltd. 1,6 Australia

B.B.C. Hotels (Robinvale) Pty. Ltd. 1,3,6 Australia

B.B.C. Hotels (Shepparton) Pty. Ltd. 1,3,6 Australia

B.B.C. Hotels (Somerville) Pty. Ltd. 1,3,6 Australia

B.B.C. Hotels (Sunbury) Pty. Ltd. 1,3,6 Australia

B.B.C. Hotels (Swan Hill) Pty. Ltd. 1,3,6 Australia

B.B.C. Hotels (Traralgon) Pty. Ltd. 1,3,6 Australia

B.B.C. Hotels (Westmeadows) Pty. Ltd. 1,3,6 Australia

Babble Pty. Ltd. 3 Australia

Baypit Pty. Ltd. 3 Australia

Bayswater Hotels Pty. Ltd. 3 Australia

Beitz Pty. Ltd. 3 Australia

Bevcorp Pty. Ltd. 3 Australia

Bilyara Vineyards Pty. Ltd. 3,6 Australia

Blackburn Hotels Pty. Ltd. 3 Australia

Brewing Holdings Limited Australia

Brewing Investments Limited Australia

Brewman CBL Limited 2 England

Brewman CBS Limited 2 England

Brewman Central Limited 2 England

Brewman CIS Limited 2 England

Brewman Eastern Limited 2 England

Brewman Group Limited England

Brewman HGS Limited 2 England

Brewman JSTB Limited 2 England

Brewman MNB Limited 2 England

Brewman NBC Limited 2 England

Brewman Overseas Limited England

Brewman PBC Limited 2 England

Brewman SW Limited 2 England

Brewman SWW Limited 2 England

Brewman TL Limited 2 England

Brewman WT Limited 2 England

Brewman WW Limited 2 England

Brewprops (Alpha) Limited 2 England


Note 33 Group entities




Brewprops (Beta) Limited 2 England

Brewprops (Delta) Limited 2 England

Brewprops (Epsilon) Limited 2 England

Brewprops (Kappe) Limited 2 England

Brewprops (Landa) Limited 2 England

Brewprops (Nu) Limited 2 England

Brewprops (Omnion) Limited 2 England

Brewprops (Zeta) Limited 2 England

Brewtech Pty. Ltd. 3 Australia

Bright Star Investments Limited Australia

Brokenback Pty. Ltd. 3,6 Australia

Buroba Pty. Ltd. Australia

C.F.L. Securities Pty. Ltd. 3 Australia

Caloundra Downs Pty. Ltd. (formerly Flanygan Pty. Ltd.) Australia

Camberwell Hotels Pty. Ltd. 3 Australia

Camwal Limited 2 England

Canbrew Treasury (U.S.), Inc. U.S.A.

Carling O’Keefe Breweries of Canada Limited Canada

Carlton and United Breweries (N.S.W.) Pty. Limited Australia

Carlton and United Breweries (N.Z.) Pty. Ltd. Australia

Carlton and United Breweries (New Zealand) Limited New Zealand

Carlton and United Breweries (Queensland) Limited Australia

Carlton and United Breweries (Stator) Pty. Ltd. Australia

Carlton and United Breweries (UK) Limited 2 England

Carlton and United Breweries Limited Australia

Carlton Brewery Hotels (N.R.) Pty. Limited Australia

Carlton Brewery Hotels (Victoria) Pty. Ltd. 1,3 Australia

Carlton Brewery Hotels Pty. Ltd. Australia

Carlton Finance Limited Australia

Carlton Special Beverages Company Pty. Ltd. Australia

Cascade Brewery Company Pty. Ltd. Australia

Catering Holdings Pty. Ltd. 3 Australia

Cogvest Proprietary Limited 1,3,6 Australia

Courlim Properties Limited 2 England

Cowistho Proprietary Limited 1,3,6 Australia

Crintana Pty. Ltd. 3 Australia

Crosswhite Investments Limited Australia

Demener Pty. Ltd. 3,6 Australia

Dennys Strachan Mercantile Limited Australia

Derel EMI Pty. Ltd. 3 Australia

Derel ERF Limited Australia

Derel ESC Limited Australia

Derel Grain Pty. Ltd. 3 Australia

Derel IT Pty. Ltd. 3 Australia

Derel QGGA Pty. Ltd. 3 Australia

Dewbit Pty. Ltd. 3 Australia

Dismin Investments Pty. Ltd. Australia

Donbar Wines Incorporated 6 U.S.A.

Dorsey Center, Inc. 2 U.S.A.

Doulton Cross Pty. Ltd. 3 Australia

Doveton Hotels Pty. Ltd. 3 Australia

Dreamgame Limited England

East Doncaster Hotels Pty. Ltd. 3 Australia

Echoin Limited England

(formerly The Barnsley Brewery Company Limited) 2

EFG Australia Limited Australia

EFG Finance Leasing Limited Australia

EFG Finance Limited Australia

EFG Holdings (USA) Inc. 2 U.S.A.

EFG Holdings NZ Limited New Zealand

EFG Investments Limited Australia

EFG Leasing Limited Australia

EFG Properties Inc. 2 U.S.A.

EFG Securities Limited Australia

EFG Services Limited New Zealand

EFG Treasury Pty. Limited Australia

EFGSB UK Limited 2 England

ELFIC Limited Australia

Elstone Developments Pty. Ltd. Australia

ESG (Enterprises) BV Netherlands

ESG (Enterprises) NV Neth. Ant.

Farnham Estates Limited New Zealand

(formerly Rothbury Wines (NZ) Limited) 6

FBG (U.K.) plc England

FBG Brewery Holdings UK Limited England

FBG Canadian Treasury Inc. Canada

FBG Credits Limited Australia

FBG Equipment Finance Limited Australia

FBG Finance Limited Australia

FBG Financial Services Limited Australia

FBG Holdings (UK) Limited England

FBG India Holdings Limited Mauritius

FBG International Limited England

(formerly Carlton Special Beverages (Europe) Limited)

FBG Investments Pty. Ltd. Australia

FBG Treasury (Aust.) Limited Australia

FBG Treasury (UK) plc England

FBG Vietnam Holdings Pty. Ltd. 1,3 Australia

Ferntree Gully Motels Pty. Ltd. 3 Australia

Filehaze Pty. Ltd. 3 Australia



Note 33 Group entities (continued)



Findon Inc. Cayman Islands

Finnews Pty. Ltd. 3 Australia

Finrust Pty. Ltd. 3 Australia

Flanagan’s Run Pty. Ltd. 3,6 Australia

Florida Waterways Inc. 4 U.S.A.

Footscray Hotels Pty. Ltd. 3 Australia

Foster’s Brewing Group (U.S.A.) Limited U.S.A.

Foster’s Brewing Group Canada Inc. Canada

Foster’s Brewing Group Limited Australia

Foster’s China Limited Australia

Galemaze Pty. Ltd. 3 Australia

Gapern Enterprises Pty. Ltd. 3 Australia

Ghalias (BBA) Limited Australia

Glenmore Park Sales Pty. Ltd. Australia

Gold Coast Brewery Pty. Ltd. 3 Australia

Gontai Pty. Ltd. 3 Australia

Great Beers of the World Limited 2 England

H. Jones & Co. Pty. Ltd. 3 Australia

Hacienda Tavern (Ferngully) Trust Australia

Herlstone Vineyards Pty. Ltd. 3,6 Australia

Horselydown Egham Limited 2 England

Inntrepreneur Beer Supply Pensions Company Limited England

Island Cooler Pty. Ltd. 3,6 Australia

J.J. Goller & Co. Proprietary Limited 1,3,6 Australia

Jedberg Investments Pty. Ltd. 3 Australia

Keysborough Hotels Pty. Ltd. 3 Australia

Kinglingston Pty. Ltd. Australia

Kings Festival Corp., Inc. 2 U.S.A.

Kranston Pty. Ltd. 3 Australia

Krondorf Wines Pty. Ltd. 3,6 Australia

Lachlan Valley Unit Trust 6 Australia

Lancastrion Pty. Limited 3 Australia

LBC Ontario Inc. 2 U.S.A.

LBC Poway Inc. 2 U.S.A.

Ledsen Pty. Ltd. 3 Australia

Lensworth Group Limited (formerly Discount Factors Pty. Limited) Australia

Lensworth Services Pty. Ltd. 1 Australia

LIC Industry Center Inc. 2 U.S.A.

Mango Hill Development Pty. Ltd. Australia

Matilda Bay Brewing Co. Ltd. Australia

Matua Finance Limited New Zealand

MBL Packaging Pty. Ltd. (formerly Pokolbin Packaging Pty. Ltd.) 3,6 Australia

Melbourne Brewery Company Pty. Ltd. Australia

Metro Hotels Pty. Ltd. 3 Australia

Middle Ridge Corporation 2 U.S.A.

Mildara Blass (UK) Limited 6 England

Mildara Blass Inc. 1 U.S.A.

Mildara Blass Limited 6 Australia

Mildara Blass Wines Inc. U.S.A.

(formerly Australian Benchmark Wines Inc.) 6

Mindis Investments BV Netherlands

Mindis NV Neth. Ant.

Mitcham Pubco Pty. Ltd. 3 Australia

Moorabbin Junction Pty. Ltd. 3 Australia

Mt Martha Hotels Pty. Ltd. 3 Australia

NIFCO Limited (in liquidation) 2 South Africa

Navistar Group Limited New Zealand

New Crest Investments Pty. Ltd. Australia

Norlane Investments Proprietary Limited 1,3,6 Australia

Norwood Beach Pty. Ltd. 1,3 Australia

N.T. Brewery Pty. Ltd. 3 Australia

Oakley Park Pty. Ltd. 1,3 Australia

Olaroll Pty. Limited 3 Australia

Ordimar Pty. Ltd. 3 Australia

Overload Investments Pty. Ltd. 3 Australia

Paracor Finance Inc. 2 U.S.A.

Park View Motel Proprietary Limited 1,3,6 Australia

Paterson Simons & Co. (Malaysia) Sendirian Berhad Malaysia

Paterson Simons & Co. (Singapore) Pte. Ltd. Singapore

Pavon Investments Inc. Br. Vgn. Is.

Pekrove Pty. Ltd. 3 Australia

Pica Finance Holdings Limited England

Pica Finance Limited England

Pica Real Estate Limited England

Pierse Pty. Ltd. Australia

Pitt, Son & Badgery Limited Australia

Power Brewing Company Pty. Ltd. 3 Australia

Primedan Pty. Ltd. 3 Australia

Queensland Breweries (Sales) Pty. Ltd. 3 Australia

Queensland Breweries Pty. Ltd. Australia

Queensland Brewery Pty. Ltd. 3 Australia

Quest Technologies Inc. 2 U.S.A.

Rimpacific Shipping (UK) Ltd. England

Rothbury (Canada) Pty. Ltd. 3,6 Australia

Rothbury Denman Pty. Ltd. 3,6 Australia

Rothbury Sales Pty. Ltd. 3,6 Australia

Rothbury Superannuation Pty. Ltd. 3,6 Australia

Rothbury Vineyards Pty. Ltd. 3,6 Australia

Rothbury Wines (NZ) Limited New Zealand

(formerly Farnham Estates Limited) 6







Traclon (No. 9) Pty. Limited 3 Australia

Traclon (No. 16) Pty. Ltd. 3 Australia

United Hotels Pty. Ltd. 3 Australia

Victoria Brewery Pty. Ltd. 3 Australia

Vintage Estates of Australia Pty. Ltd. 3,6 Australia

Volz Pty. Ltd. 3 Australia

Waterways Apartments Inc. 4 U.S.A.

Watfield Investments Limited New Zealand

Werribee Properties (RWDS) Proprietary Limited 3 Australia

Werribee Properties (WIE) Pty. Ltd. 3 Australia

Westwools Energy Pty. Ltd. 3 Australia

Whitecross Investments Limited Australia

Windemere Securities Limited 2 T & C Is.

Wolf Blass Wines Pty. Ltd. 3,6 Australia

Wood Hall (Aust.) Pty. Limited 3,5 Australia

Wood Hall Trust plc England

Wydill Pty. Ltd. 1 Australia

Yanaba Pty. Ltd. 3,6 Australia

Yarra Valley Wine Co. Pty. Ltd. 3,6 Australia

Yarra Valley Wine Holdings Pty. Ltd. 3,6 Australia

Zedoworth Pty. Limited 3 Australia

Zedozoa Pty. Limited 3 Australia

151435 Canada Ltd. 2 Canada

18th Street Corp. 2 U.S.A.

A.C.N. 004 526 523 Pty. Ltd. 3 Australia

A.C.N. 006 327 313 Pty. Ltd. 3 Australia

Rothbury Wines Europe Limited 6 England

Rothbury Wines Pty. Ltd. 3,6 Australia

Rumar International Limited Australia

Savirak Pty. Ltd. 3 Australia

Seeton Pty. Ltd. 3 Australia

Shortridge Lawton & Company Limited 2 England

Silvester Brothers (AMH) Pty. Limited 3 Australia

Silvester Brothers (AMHUK) Limited England

Silvester Brothers (TBPAC) Limited New Zealand

Silvester Brothers Pty. Limited 3 Australia

Solsom Pty. Ltd. 1 Australia

Spur Taverns Limited 2 England

Starada Pty. Ltd. 3 Australia

Sylfield Hotels Pty. Ltd. 3 Australia

The Australian Pubco (NSW) Pty. Ltd. 3 Australia

The Ballarat Brewing Company (Geelong) Pty. Ltd. 1,3,6 Australia

The Ballarat Brewing Company Limited 1,6 Australia

The Castlemaine Brewery Company Melbourne Pty. Ltd. 3 Australia

The Foster Brewing Company Pty. Ltd. 3 Australia

The Inntrepreneur Beer Supply Company Limited England

The Redback Brewery (Hotel) Trust Australia

The Redback Brewery (Property) Trust Australia

The Redback Brewery Trust Australia

The Rothbury Estate Pty. Ltd. 3,6 Australia

The Shamrock Brewing Company Pty. Ltd. 3 Australia

TPP Corp., Inc. 2 U.S.A.

Traclon (No. 2) Pty. Ltd. 1,3 Australia



The FBG Group has a controlling interest in the following entities that are not 100% owned:

Country of Incorporation Group ownership percentage

1997 1996

Carlton Brewery (Fiji) Limited Fiji 63.1 63.1

Foster’s Wheelock Tianjin Investment Company Limited Br. Vgn. Is. 50.0 50.0

Graymoor Estate Joint Venture 6 Australia 48.8 48.8

Graymoor Estate Pty. Ltd. 3,6 Australia 48.8 48.8

Graymoor Estate Unit Trust 6 Australia 48.8 48.8

Guangdong Foster’s Brewery Limited China 95.0 95.0

Raly Breweries Limited 1 India 51.0 –

Robertsons Well Joint Venture 6 Australia 70.0 70.0

Robertsons Well Pty. Ltd. 3,6 Australia 70.0 70.0

Robertsons Well Unit Trust 6 Australia 70.0 70.0

Shanghai Foster’s Brewery Limited China 90.0 90.0

Tianjin Foster’s Brewery Company Limited China 46.3 46.3




Ashwick (Qld.) No. 134 Pty. Ltd. John Baxter Limited

Bankside Insurance Company Limited Matilda Bay Brewing Co. (Vic.) Pty. Ltd.

Beverley Brothers Limited Mill Park Hotels Pty. Ltd.

Daniell & Sons’ Breweries Limited Newport Crossing Inc.

EFG Asia Limited Pica (UK) Limited

EFG Financial Limited Polabo Limited

EFG Hong Kong Limited Polar Gain Limited

EFG International Limited Russell’s Gravesend Brewery Limited

(formerly Carlton and United Breweries International Limited) Shoeshine Fifty Limited

Elders Pacific Pte. Limited Southern Taverns (Gosport) Limited

ELFIC Holdings B.V. The Writtle Brewery Company Limited

Felibo Limited Valley Commerce Pty. Ltd.

Galepot Pty. Ltd. Yates’s Castle Brewery Limited

J. Hey & Co. Limited A.C.N. 006 326 816 Pty. Ltd.

1. These entities were acquired during the current financial year.

2. Foreign incorporated entity audited as part of a group by a Price Waterhouse firm.

3. Entity not audited individually as it is a small proprietary company not required

to prepare financial statements.

4. Entity audited by a firm other than Price Waterhouse or their affiliates.

5. Entity is relieved from the requirement to prepare audited financial statements

by ASC Class Order (97/0566) dated 24 April 1997.

6. Entity audited by a firm other than Price Waterhouse or their affiliates in 1996.

None of the foreign controlled entities were audited by Price Waterhouse,

Australian firm.

Entities in which the Group’s ownership interest is 50 per cent or less are

consolidated where the Group has the capacity to control the entities or has

the capacity to enjoy the majority of the benefits and to be exposed to the majority

of the risks of the entities.

Entities no longer controlled:





Entity acquired Proportion ofshares acquired

Consideration during the year

$m %

The Ballarat Brewing Company Limited Group 1 45.9 68.4

Carlton Brewery Hotels (Victoria) Pty. Ltd. – 100.0

Lensworth Services Pty. Ltd. – 100.0

Norwood Beach Pty. Ltd. – 100.0

Oakley Park Pty. Ltd. – 100.0

Raly Breweries Limited 0.1 51.0

Solsom Pty. Ltd. – 100.0

Traclon (No.2) Pty. Ltd. 2 0.2 50.0

Wydill Pty. Ltd. – 100.0

In addition, 2 entities were incorporated during the year as controlled entities.

1. The operating results of The Ballarat Brewing Company Limited Group have been included

in the consolidated profit and loss statement from 1 February 1997. This Group is now 100%

owned. At 30 June 1996 the Group held a 31.6% interest at a cost of $16.4 million.

2. This entity is now 100% owned

Entity acquired subsequent to year end

Subsequent to the end of the financial year the Group

acquired 100% of the Cellarmaster Wines Group for

a total outlay, including borrowings, of approximately

$160 million. The principal activity of this group is

the direct marketing of table wine products.

Entity disposed of by saleProfit/(Loss) Remainingon disposal interest held

$m %

ELFIC Holdings B.V. Group, comprising – –

ELFIC Holdings B.V.

EFG Asia Limited

EFG Financial Limited

EFG Hong Kong Limited

EFG International Limited

Felibo Limited

Polabo Limited

Polar Gain Limited

Matilda Bay Brewing Co. (Vic.) Pty. Ltd. – –

Valley Commerce Pty. Ltd. – –

In addition, 17 controlled entities were liquidated during the year.

Acquisitions/Disposals of controlled entities

The following entities were acquired or disposed of during the financial year:



We, John Theodore Ralph and Edward Thomas Kunkel,

being two directors of Foster’s Brewing Group Limited,

state on behalf of the directors and in accordance with a

resolution of the directors that in the opinion of the

directors

(a) the accompanying accounts of the Company give a true

and fair view of:

– the profit of the Company for the year ended

30 June 1997; and

– the state of affairs of the Company at 30 June 1997;

(b)at the date of this statement, there are reasonable

grounds to believe that the Company will be able

to pay its debts as and when they fall due;

(c) the consolidated accounts have been made out in

accordance with Divisions 4A and 4B of Part 3.6

of the Corporations Law and give a true and fair

view of the matters with which they deal.

Dated at Melbourne this 25th day of August 1997

On behalf of the Board

John T Ralph

Chairman

E T (Ted) Kunkel

President and Chief Executive Officer

93

Statement by Directors



Scope

We have audited the financial statements of Foster’s Brewing

Group Limited (the Company) for the financial year ended

30 June 1997 as set out on pages 48 to 92. The financial

statements consist of the accounts of the Company and

the consolidated accounts of the economic entity comprising

the Company and the entities it controlled at the end of,

or during, the financial year. The Company’s directors are

responsible for the preparation and presentation of the

financial statements and the information they contain.

We have conducted an independent audit of these financial

statements in order to express an opinion on them to the

members of the Company.

Our audit has been conducted in accordance with

Australian Auditing Standards to provide reasonable

assurance as to whether the financial statements are free of

material misstatement. Our procedures included

examination, on a test basis, of evidence supporting the

amounts and other disclosures in the financial statements,

and the evaluation of accounting policies and significant

accounting estimates.

These procedures have been undertaken to form an

opinion as to whether, in all material respects, the financial

statements are presented fairly in accordance with

Accounting Standards, other mandatory professional

reporting requirements, being Urgent Issues Group

Consensus Views, and the Corporations Law so as to

present a view which is consistent with our understanding

of the Company’s and the economic entity’s state of affairs,

the results of their operations and their cash flows.

We have not acted as auditors of the controlled entities as

identified in note 33 to the financial statements. We have,

however, received sufficient information and explanations

concerning these controlled entities to enable us to form an

opinion on the consolidated accounts.

The audit opinion expressed in this report has been formed

on the above basis.

Audit Opinion

In our opinion, the financial statements of the Company

are properly drawn up:

(a) so as to give a true and fair view of:

(i) the state of affairs at 30 June 1997 and the results

and cash flows for the financial year ended on that

date of the Company and the economic entity; and

(ii) the other matters required by Divisions 4, 4A and 4B

of Part 3.6 of the Corporations Law to be dealt with

in the financial statements;

(b) in accordance with the provisions of the

Corporations Law; and

(c) in accordance with applicable accounting standards

and other mandatory professional reporting requirements.

Price Waterhouse

Chartered Accountants

Paul V Brasher

Partner

Melbourne, 25 August 1997

Independent Audit Report to the Members ofFoster’s Brewing Group Limited




Holding of securities

Listed securities - 29 August 1997 No. of holders No. of securities % held by top 20Fully paid ordinary shares of $1 each 70,818 1,708,311,339 70.77

Unlisted securities - 29 August 1997Ordinary shares of $1 each issued under the No. of participants

1987 Employee Share Plan and paid to 1.67 cents each in Share Plan No. of shares

Issued at a premium of $4.83 each 241 4,984,140

Issued at a premium of $6.38 each 5 276,300















Of the above shares a total of 5,402,769 shares are held by

FBG Incentive Pty. Ltd. as trustee for the participants in

the 1987 Employee Share Plan and 36,002,769 are held by

Group superannuation funds.

There are a total of 995 participants in the 1987 Employee

Share Plan.

Options - 29 August 1997 No. of shares if options are exercisedEmployee Options exercisable at:

- $2.12 per share 13,440,000

- $2.36 per share 900,000

Details of Shareholders and Shareholdings


Details of Shareholders and Shareholdings(continued)


Distribution of holdings No. of ordinaryNumber held shareholders

1 - 1,000 24,506*

1,001 - 5,000 32,086

5,001 - 10,000 8,203

10,001 - 100,000 5,616

100,001 and over 407

* Of these, 3,567 ordinary shareholders held less than a marketable parcel (of 100 shares).

No. of % ofTwenty largest shareholders fully paid $1 fully paid $129 August 1997 ordinary shares ordinary shares

Westpac Custodian Nominees Limited 234,232,849 13.71

National Nominees Limited 192,223,842 11.25

Chase Manhattan Nominees Limited 176,750,823 10.35

ANZ Nominees Limited 147,110,843 8.61

BHP Finance Investments (I) Pty Limited 100,000,000 5.85

Commonwealth Custodial Services Limited 49,398,885 2.89

State Authorities Superannuation Board 49,066,895 2.87

Queensland Investment Corporation 45,090,873 2.64

Citicorp Nominees Pty Limited 40,452,284 2.37

Pendal Nominees Pty Limited 38,083,347 2.23

Perpetual Trustees Victoria Limited 27,185,318 1.59

The National Mutual Life Association of Australasia Limited 19,773,308

1.16

HKBA Nominees Limited 17,467,411 1.02

National Mutual Trustees Ltd 16,034,551 0.94

MLC Limited 12,388,580 0.73

The Commonwealth Superannuation Board of Trustees 11,127,022 0.65

Prudential Corporation Australia Limited 9,789,752 0.57

Australian Mutual Provident Society 8,425,756 0.49

Transport Accident Commission 7,879,694 0.46

Victorian Workcover Authority 6,727,464 0.39

1,209,209,497 70.77

Substantial shareholders29 August 1997

The following companies are registered by the Company as

substantial shareholders, having declared a relevant interest

in the number of voting shares shown adjacent at the date

of giving the notice.

The Broken Hill Proprietary Company Limited and all its subsidiaries 101,740,831

Asahi Beer International Holding (Australia) Ltd

and all of its related bodies corporate 115,843,840


Des

igne

d an

d pr

oduc

ed b

y H

orni

ak &

Can

ny,M

elbo

urne

and

Syd

ney,

Aust

ralia

Print

ed b

y C

anbe

rra

Pre

ss

'97 Fosters Inside Back Cover 11/6/99 2:24 PM Page 1

Foster’s Brewing Group Limited77 Southbank BoulevardSouthbankVictoria 3006Australia

'97 Fosters Back Cover 11/6/99 2:21 PM Page 1

Documents

Foster’s Brewing Group Limited Annual Report 1997 · • Group proﬁt before interest and tax up 17.4% to $426.8 million. • Fifth consecutive year of double digit proﬁt growth