Southcorp today gave further evidence that it is on the road to recovery under the leadership of CEO John Ballard with a much improved first half performance.

The Australian wine giant benefited in particular from a strong UK/European showing, where the business continued to improve ahead of schedule, delivering earnings growth of 113.7%. But there was also a strong performance from the Australasian business with earnings growth of 39.6% and a solid 14.9% improvement in earnings for the Americas in constant currency terms - although adverse currency impacts saw the result decline 0.4% in Australian dollars.

"Solid improvements in our earnings were achieved across all regions against the backdrop of difficult trading conditions in all markets. The result saw generally flat sales growth except in the UK/Europe region, where sales revenue grew an impressive 20%," CEO John Ballard said.

"As previously foreshadowed, advertising and promotion budgets in Australasia and the Americas increased by 40% and 50% respectively for the half, with most of the spending occurring in November and December. It is too early to see any benefit to top line growth from this spending at this stage.

"There is also early evidence that some of the oversupply issues which have hampered the global wine industry in recent years are receding," he added.

The group, which owns Penfold's and Lindeman's wine brands and is currently the subject of a hostile takeover by Foster's Group, today unveiled a 49.7% increase in net profits after tax A$60.6m. EBITDA rose 28.3% to A$96.3m for the six months to 31 December 2004.

The company said the result, coupled with continued strong operating cash flow (up 35% to A$121.9m), had allowed it to bring forward the reinstatement of dividends by declaring a 3 cent unfranked dividend for the half-year.

Ballard said: "Southcorp's recovery is on track and has started to pay dividends for our shareholders. We have delivered excellent earnings growth in flat global markets at the same time as commencing our program of reinvesting significant new funding behind the marketing and promotion of our brands.

"It is also pleasing to see that our focus on generating cash flow has resulted in a further A$146.7m reduction in net debt during the period. This improvement leaves our total net debt position at A$451.7m and supports our ability to reinstate dividend payments to shareholders.

"Our focus on increasing our return on capital employed (ROCE) has also begun to show positive results, with the annualised ROCE rate for the half-year standing at 10.7% - exceeding the cost of capital for the first time in two years.

"Operationally, the result was underpinned by excellent performances in the UK/Europe region and in Australasia, a solid progress in the Americas region, by our continued focus on business improvement through the Veraison program, and by the commencement of implementation of the asset review program we announced in June 2004."

Ballard said that detailed financial forecasts for the 2005 and 2006 financial years would be included in the Target Statement due to be lodged with ASIC over the next two weeks. He reaffirmed his previous guidance to the market for modest earnings growth in relation to the 2005 full year result.