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Aussie producers ‘traumatised’ by downturn

Australia's major wine producers are continuing to reel from what is described as 'the most traumatic profit season in a decade'.

Sluggish sales, oversupply and aggressive retailer demands are taking their toll on an industry swept up in a wave of merger and acquisition activity.

This week embattled giant Southcorp reported a 97 per cent drop in first half profits. Executive chairman Brian Finn warned it would not make its downgraded annual earnings forecast of A$287m (US$174m).

The outlook for BRL Hardy is a little more upbeat. Managing director Stephen Millar, forecasting at least 15 per cent profit growth in 2002, said it would have been higher without the current retail discounting which he anticipated easing ‘a little in 2003, and a lot in 2004.’

With shareholders meeting on 20 March to decide on US-based Constellation Brands proposal of a AUS$1.9bn (US$1.15bn) takeover bid – which would create the world’s largest wine business – Millar said that although he saw further consolidations he thought the industry would continue to grow.

‘I think the numbers will keep increasing,’ he said.

Foster’s Group posted a AUS$335m (US$203m) profit in its first half results for 2002/03 – up 4.1 per cent. This was due it said to improved performance from its core Australian beer operations, which offset diminished growth in its global wine division.

CEO Ted Kunkel said a return to double digit growth and normalised earnings was expected in the second half of 2002/03 although the timeframe depended on an upturn in world economies.

The trend for earnings shortfalls is being felt throughout the industry. Barossa Valley producer Peter Lehmann posted a half-yearly profit downgrade of 13%, but remained confident of an improved second-half performance.

Managing director Doug Lehmann said the current situation was reminiscent of the 1980s ‘when oversupply led to disorderly marketing and discounting.’

‘The extra supply will correct itself, and the natural advantages and experience Australia has as a quality producer should ensure growth,’ he said.

In contrast, New South Wales-based McGuigan Simeon Wines recorded a 35 per cent increase in half yearly profits, largely due to exports. Managing director Brian McGuigan said he anticipated meeting full year’s profit of AUS$37m (US$22m) despite refusing to mark down wine.

‘Things are on the improve for us,’ he said. ‘While everyone else is making changes it makes it easier for the people who are not having operational changes or problems.’

Written by Tracey Barker28 February 2003

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