$923m net loss

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    Australia's biggest wine group, Southcorp Ltd, booked a massive net loss of $922.89 million for 2002/03, after a surprise writedown on one of its premier brands, Rosemount Estate.

    New chief executive John Ballard said urgent and substantial action was needed after the "unacceptable" loss, which compares to a net profit of $312.7 million in fiscal 2002.

    Southcorp, whose core brands are Penfolds, Rosemount Estate, Lindemans and Wynns, also warned it expects flat revenues and volumes this financial year as United Kingdom and United States markets remain difficult.

    "For the next financial year, revenue and volumes are expected to remain flat," said Mr Ballard, who took over at the struggling winemaker in April this year. advertisement


    The first half trading result for 2003/04 would be lower than the same period in the previous year as Southcorp halted the practice of pushing big volumes of stock on its customers to boost sales.

    Southcorp also announced a new strategic business plan, Project Veraison, aimed at restoring the company's earnings.

    Cost-saving initiatives in production, overheads and end markets had started and were expected to generate margin growth of three to four percentage points on sales revenue in fiscal 2004.

    "The full year results for 2003 are unacceptable and whilst they include the seeds of improvement they reinforce the need for urgent and substantial action to improve efficiencies across the company," Mr Ballard said.

    Southcorp plunged into the red for 2002/03 after $977.8 million worth of significant items before tax, including the write-off of $642.5 million in goodwill and the $240 million Rosemount writedown.

    This leaves Rosemount, which Southcorp bought in 2001 for $1.5 billion, with a carrying value of $340 million.

    Southcorp reported earnings before interest, tax and amortisation, before significant items and SGARA (self-generating assets and regenerating assets) of $132.1 million - in line with its guidance in May of $130-$140 million.

    Southcorp's performance this year was hurt by heavy discounting of wine in the United Kingdom, a poor global promotional strategy, strained relations with major retailers, a strengthening Australian dollar and a grape glut in California in the US.

    Mr Ballard's predecessor, Keith Lambert, was forced to resign in February after a succession of profit downgrades. Mr Lambert joined Southcorp from Rosemount.

    Mr Ballard said the Rosemount writedown might have surprised the market but was done to meet accounting standards and did not reflect the true value of the brand.

    "Fundamentally our brands remain extremely valuable, and we will see a significant recovery in their earnings in future years," he said.

    "In total, because key brands are carried at nil or minimum value, it is my view that the balance sheet significantly undervalues shareholder assets."

    One of the most strategic questions Southcorp would address in the medium term was defining the right asset base.

    "By the end of fiscal `04, we would expect to be in a better position to define the right mix of assets for our business," he said.

    "The realisation of the ultimate position may, however, take much longer."

    Mr Ballard said it was questionable as to whether Southcorp needed to own all of its own wineries and its bottling facilities.

    But Southcorp would not be selling any of its key brands.

    Mr Ballard also said he expected Southcorp to remain in Australian hands.

    Southcorp has been subject to takeover speculation for much of the year although, recently, potential predators such as Foster's Group Ltd have said they would not be interested because major wine assets were too expensive at the moment.

    Asked if he expected Southcorp to be subject to takeover activity, Mr Ballard said Southcorp shareholders would derive most value from turning the company around, "not selling it".

    Southcorp's total revenues for fiscal 2003 fell to $1.24 billion from $2.67 billion but the previous year included $1.19 billion of revenue from divested businesses.

    Southcorp did not declare a final dividend, which was flagged previously. The timing of the reintroduction of dividends was dependent on the company's future performance, it said.

    UBS analyst David Roberton (Roberton) said Southcorp's future strategy had been reasonably clearly put, which gave the market some confidence that the right thing was being done to turn around the business.

    Southcorp had also confirmed that margins might be extended.

    Mr Roberton said the market still wanted to see how Southcorp would fund future growth rather than just eradicating costs.

    Southcorp shares were six cents higher today at $3.20
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