Southcorp trading

Poor performance means Southcorp still singing the blues….

TRADING HAS BEEN TOUGH for the troubled Southcorp corporation in the past year and things do not look as though they are about to improve in a great hurry.  The company was braced for bad news, but the latest results, for the year to the end of June 2003, exceeded even the most dire expectations.

Following on from six profit warnings over the course of the year, the financial results culminated in a net loss of A$922.9m (£375m).  Total revenues of A$1.24 billion (£3.1m) were down by more than 53%.

Last year, the company saw net profits of A$313m.  CEO John Ballard, who replaced Keith Lambert in April 2003, referred to the results as "unacceptable".

The company’s continuing weakness, added to the attractiveness of its brands – particularly Rosemount, Lindeman’s, Wynns and Penfolds – mean that the company is a frequent topic of takeover speculation from the rumour mill. (Recently, Foster’s, which is selling off its pubs, gaming and liquor retail outlets in Australia, was said to have been considering a bid, and Brown-Forman and Robert Mondavi have also been mooted as possible suitors.)

To a much smaller extent, Southcorp’s woes are reflected in the larger Australian wine sector, in which value growth is lagging behind volume growth.  According to figures published in the Financial Times, although Australia exported 517m litres of wine in the year to July 2003, the value of the average unit fell by 2.6%.

A recent report by KPMG underscored a sense of gloom in the Aussie wine industry by referring to "a measure of paralysis" that exists within the sector, as well as a potentially dangerous "short-sightedness".

Ballard, however, despite his almost contrite admission that the company’s performance falls well short of shareholders’ expectations, claims that there are a few "seeds of improvement" among the dead wood.

The company does not expect to see growth in volumes in the coming year, but is hoping to improve margins by 3% to 4% in the coming year.  Ballard is also said to be working on a wide range of cost-cutting measures, as well as addressing criticisms of the company’s relationships with retailers.

Despite the tough market, however, not all the big drinks companies are singing the blues alongside Southcorp.  Indeed, Foster’s is feeling buoyant while Diageo has posted a £2.16 billion pre-tax profit for the year to the end of June 2003. Volume sales were said to be up by 1%, while net sales rose by 4%.