MORE WOE FOR SOUTHCORP

Published: 23 July, 2008

By Jack Hibberd

Southcorp's difficulties intensified this week, after poor first-half results sent shares in the wine giant plummeting. Southcorp said it would not even be able to meet its earnings forecast, which was downgraded by A$50 million last month to A$287 million. And due to uncertainty and volatility' in some markets, as well as the company's own review of its sale and promotional spend', it refused to give earnings guidance for the full year. Shares in Australia's biggest wine company fell as low as A$3.55 on Tuesday, almost half their value soon after the Rosemount merger, raising speculation of an imminent takeover bid. A report in last week's Daily Telegraph suggested Allied Domecq as a possible suitor, although Diageo and Foster's have also been mentioned. This week also marks the end of an agreement under which the Oatley family was forbidden to increase its shareholding above 20%. Announcing its interim results, Southcorp said: Results in the United Kingdom were particularly weak, attesting to highly difficult trading conditions in the market.' It added that Christmas sales volumes in the UK were significantly weaker than anticipated', with sales volumes skewed to lower-margin lines. Promotional expenditure', the company said, led to marked deterioration in margins'. Overall, first-half net profits fell by 97% to A$5.706 million, although this figure was dramatically affected by a number of one-off items, such as the A$13 million writedown of the failed joint venture, the International Wine Company. Positive news for investors was an increase in bottled wine sales revenue, up 6%, although lower margins meant a 19% fall in resulting profits. Chairman Brian Finn said: Despite the poor half-year results, solid progress is evident in a number of areas. The strength of the core premium brands is demonstrated by their contribution to 64% of total volume and 79% of total sales revenue.' Finn stressed that: The company remains committed to a premium wine strategy. The next six months should see some improvement in the product mix, with contributions from new product releases, such as Thomas Hyland.' Southcorp also released details of the payout received by recently deposed CEO Keith Lambert, which was put at A$4.377 million.

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