A slide in Southcorp's share price - caused by a company forecast of lower profit expectations - appeared to have ended with the stock recovering A$0.11 to $4.58 today (Tuesday) when trading resumed following a three-day weekend.

The rise came on top of a A$0.03 increase last Friday, following an A$)0.36 fall on Wednesday and a further $0.29 fall on Thursday when the stock closed at its lowest level for three months and only A$0.12 above its 52-week low.

CEO, Graham Kraehe, issued the profit downgrade on Wednesday, blaming it on slack consumer demand and some de-stocking by retailers pending the July 1 start of Australia's radical new taxation system. The system - based on the abolition of wholesale sales taxes and the introduction of a 10% goods and services tax - has caused a general downturn in consumer spending.

Four interest rate rises, each of 0.25% since November, have also dampened demand generally and, in the wine sector, a post-millennium "hangover" is adding to the slowdown. Figures from the Government's Australian Bureau of Statistics show that domestic sales of wine and brandy in April totalled 26.1m litres, compared with 30.3m litres in April 1999, a 13.6% fall.

"As half of Southcorp's wine sales are Australian, this softness will reduce profit expectations for the year as the June quarter is the largest profit contributor," Kraehe said. "Wine profit in the June half is now expected to be a little below last year although well ahead of the December half."

BRL Hardy managing director, Stephen Millar, re-iterated that he is "comfortable" with the company's forecasts, saying it is "doing great". However, Australian trading manager, Brian de Mamiel, said that demand was as "sluggish" as he had seen in his 30 years in the industry.

He believed that consumer buying patterns had changed ahead of the start of GST with non-discretionary items which were likely to rise in price being bought in preference to discretionary items such as wine.

Glen Cunningham, executive general manager, corporate affairs, for Southcorp says the new tax system's requirement for quarterly audits by retail business has led to de-stocking and new orders being held back to after July 1.

There is less concern for Australia on the export front with records continuing to be set month after month. Strong pre-millennium demand has boosted sales to a record 281.9m litres, worth $A1.32billion, for the year to the end of May, a 34.7% increase, compared with a 43.5% increase in the year to the end of April.

Sales to the UK totalled 137m litres, a 36.5% increase for the 12 months, and were worth $A577m. The US, the second biggest market, took 49.5m litres, also a 36.5% increase, worth $A310.2m while sales to the third biggest market, New Zealand, were up 6.2% to 65.6m litres worth $A65.6m. Canada took 12.1m litres (up 41.2%), Germany 9.1m litres (up 63.7%) and The Netherlands 7.3m litres (up 104.3%).
The biggest percentage increase - 135% - was in sales to the 11th biggest market, France, which took 2.8m litres.

Chris Snow