srp down 18%, page-3

Southcorp 1st-Half Net Slumps 97% on U.K. Sales Drop (Update2)
By Jason Gale


Sydney, Feb. 25 (Bloomberg) -- Southcorp Ltd., which fired its chief executive this month, said first-half profit slumped 97 percent because U.K. sales fell and it cut prices. Australia's biggest winemaker won't meet its full-year earnings forecast.

Net income in the six months ended Dec. 31 fell to A$5.7 million ($3.4 million), or 0.8 cents a share, from A$210 million, or 28.4 cents, in the same period a year earlier. Profit in the year-earlier half included a A$130 million gain on the sale of its water heater businesses.

The earnings slump comes in a year when Australia exported a record A$2.3 billion of wine and dislodged France as the top supplier to the U.K. Poor marketing and shrinking profit margins meant Southcorp didn't benefit from soaring demand for Australian wine as it cut prices to compete for supermarket shelf space, and U.K. earnings dropped 53 percent.

``Discounting a lot of its product has destructed any brand equity it had,'' said Rupert Clifton-Bligh, who helps manage A$300 million at Berren Asset Management Ltd., including Southcorp shares. ``It will take three or four years before it can regain any sort of pricing power that its key brands had in the market.''

Southcorp said it won't meet its earnings forecast for the full-year, which it slashed by 15 percent last month to A$287 million before tax and amortization. It didn't give a new forecast.

``Trading conditions are expected to remain competitive in Southcorp's key markets, especially in the U.K., during the remainder of this financial year,'' Chairman Thomas Finn said in a statement. The company won't make a new full-year earnings forecast ``in light of the uncertainty and volatility in some markets.''

Southcorp, the maker of Lindemans, Rosemount and Penfolds wines, joined rivals BRL Hardy Ltd. and Robert Mondavi Corp. by cutting profit forecasts last month, citing sluggish sales, a grape glut and demands from supermarkets seeking lower prices for their wines.

Southcorp's shares, which were halted from trading Friday pending the announcement, have slumped 38 percent during the past year, prompting some analysts to speculate the company may be targeted for takeover. Potential suitors include Foster's Group Ltd. and U.K.-based liquor companies Allied Domecq Plc and Diageo Plc.
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