Constellation offloads Aussie assets

As reported in Finance on Friday last week, Constellation is cutting its cost base and reducing debt. Earlier this year the company sold Almaden and Inglenook brands as well as a Canadian distillery and now it is streamlining its Wines Australia business, formerly the Hardy Wine Co.

Constellation is planning to offload three out its ten production facilities in Australia (in Clare, Padthaway and Mount Barker) as well as 20 vineyards.

It also aims to increase efficiencies by consolidating its bottling operations and cutting more than 30% of its warehousing. In all, some 350 jobs will go, about 20% of the Australian workforce, in an exercise that will cost Constellation around US$140m.

As noted last week, there had been hopes that the “short” 2007 vintage would help resolve Australia’s oversupply of grapes, but they were dashed when this year’s harvest came in at twice the level expected. As a result, Constellation will also rationalise its grape supply contracts and concentrate on its premium labels.Bob Ryder, Constellation Brands chief financial officer commented,

“We are eliminating less profitable SKUs, focusing on brand-building and increasing pricing to restore appropriate levels of profitability."

Sold so far this year:

• Almaden and Inglenook brands to Beam Global for $134m
• Canadian distillery and bottling plant to Diageo for an undisclosed sum
• Various North Western Pacific and California brands to a Sonoma private company for $234m

Patrick Schmitt 13.08.08