Southcorp fights downturn

- Last updated on GMT

Related tags: Wine

Australia's biggest wine producer, Southcorp, has announced an
extensive restructuring designed to counteract the affects of a
downturn in the US economy and a weakened Australian dollar. The
AUS93 million (€53.7m) package involves the streamlining of
production activities and the loss of 300 jobs.

Described by Southcorp​ as a new production and distribution blueprint for its operations, which it said was expected to deliver incremental EBIT of AUD27 million per year by 2008. This will be achieved by streamlining the company's packaging and distribution operations as well as some rationalization of its wineries. The company added that savings would primarily come from fixed and freight costs, and eventually from productivity gains.

"Under the Veraison programme the company will undertake end-to-end business process reviews in order to simplify, standardize and consolidate its current processes and practices,"​ a press statement said on the subject.

The company launched its Veraison programme back in August 2003, a continuous improvement initiative that is said to currently bring in savings of AUD40 million a year.

Southcorp CEO John Ballard said that central to its goal of being a leading premium winemaker "is the ability to source fruit from diverse geographies, and tomake wine in close proximity to where the fruit is grown. This requires that wemaintain strategic holdings of vineyards and wineries throughout Australia's premiumwine districts.

"The major opportunity to realise efficiencies whilst maintaining the high quality of ourwines is in rationalising packaging and distribution where Southcorp has anuncompetitive cost structure,"​ Ballard said.

As part of the plan the packaging and distribution functions will be consolidated into two centres at theKaradoc winery in Victoria's Sunraysia region and at the Nuriootpa winery in SouthAustralia's Barossa Valley. In an effort to further enhance the efficiency gains, the company says it will also consolidate more winemaking at these two wineries and rationalise the Australian distribution system.

The plan means that the company's packaging operations at Great Western and Denman will be consolidated into its two other operations at Nuriootpa and Karadoc, with both facilities being expanded to increase capacity. Furthermore its nine distribution centres will be consolidated into three- a national distribution centre at Karadoc, an international distribution centre at Nuriootpa and a distribution centre for Western Australia in Bassendean.

With regards wine production, sparkling wines will be relocated from Great Western to Karadoc in March 2005 from which time vintage wines will all be produced Nuriootpa and Karadoc. Wine production at Yenda and Waikerie will also be transferred to these two facilities. In turn production of vintage wine capacity at Karadoc will be increased from 80,000 tonnes to 150,000 tonnes, while vintage capacity will be increased from 10,000 tons to 50,000 tons at Nuriootpa.

The company said that, although 300 jobs would have to go across its locations, the expansion of the Nuriootpa and Karadoc facilities would eventually lead to the creation of around 110 new positions.

In tandem with the announcement about restructuring, the company also reaffirmed its expected earnings for the coming financial year, stating that as previously mentioned in February this year, it still believed it was on course to EBITA earning in the region of AUD160 - AUD 170 million.

The company added that it expected this performance would be heavily weighted by strong performances in both the Australasian and UK/European markets. It also said that the US market continued to experience rough trading conditions, which were expected to impact returns, compounded by the fact the Australian Dollar continued to have a weak showing against other foreign currencies.

Related topics: Business, Oceania, Beverages

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