AUSTRALIA: Southcorp to cut jobs and sell assets

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Southcorp has today unveiled the results of an asset review, part of its Veraison programme, put in place by CEO John Ballard for the company's corporate recovery.

The plans include the sale of two wineries and the closure of many of its distribution and packaging plants, resulting in a number of job losses.

In a statement today Southcorp said that the new blueprint will deliver incremental cash flow of A$28 m per annum and incremental EBIT of A$27 m per annum by 2008.

CEO John Ballard said: "Southcorp is committed to being a dedicated and leading premium winemaker with a portfolio of brands and wines that range from the contemporary to the iconic, are distinctive in style, high in quality and represent the best of Australia's wine growing regions.

"Central to that goal is the ability to source fruit from diverse geographies, and to make wine in close proximity to where the fruit is grown. This requires that we maintain strategic holdings of vineyards and wineries throughout Australia's premium wine districts.

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

The company's packaging and distribution functions will be consolidated into two centres at the Karadoc winery in Victoria's Sunraysia region and at the Nuriootpa winery in South Australia's Barossa Valley.

The company will also consolidate more winemaking at these two wineries and rationalise the Australian distribution system.

Southcorp's four packaging centres (Nuriootpa, Karadoc, Great Western and Denman) will be consolidated into two - at Nuriootpa and Karadoc. The bottling and packaging functions and equipment at Denman and Great Western will be relocated to Nuriootpa and Karadoc by the end of 2005. Karadoc and Nuriootpa packaging centres will be expanded to increase capacity.

Southcorp will also consolidate its nine distribution centres into three - a National Distribution Centre at Karadoc, an International Distribution Centre at Nuriootpa and a West Australian Distribution Centre at Bassendean. The State Distribution Centres at Villawood (NSW), Nunawading (Victoria), Archerfield (Qld) and Magill (SA) will no longer be needed as part of the supply chain and will be closed later this year.

In winemaking, Southcorp's sparkling wine production, except Methode Champenoise, will be relocated from Great Western to Karadoc from March 2005. From 2005, vintage operations (i.e fruit crushing) for all fortified wines will be relocated from Seppeltsfield to Nuriootpa and Karadoc.

The winemaking activities from the Yenda winery near Griffith and Waikerie winery in the South Australian Riverland will be transferred to Nuriootpa and Karadoc, eliminating the current duplication of winemaking facilities in irrigated areas.

The Yenda winery will be closed or sold later this year and the Waikerie winery will be sold or closed following the 2005 vintage. Karadoc's vintage capacity will be expanded by 80,000 tonnes to 150,000 tonnes by FY08.

Nuriootpa's vintage capacity will be expanded by 10,000 tonnes to approximately 50,000 tonnes by 2007.

Write-downs of the carrying values of fixed and other assets will reach A$73 m and provisions for redundancy and other implementation costs are expected to be A$20 m in the current financial year.

Net capital expenditure of A$58 m will be needed largely to upgrade facilities at Nuriootpa in the Barossa Valley and Karadoc in Victoria's Sunraysia district.

Ballard said that, while the changes were vital to the future health of the company, he regretted the personal impact they would have on a number of employees.

"We regret that the changes will mean that approximately 300 current positions across a number of our locations will no longer be required at Southcorp," Ballard said.

"There will, however, be approximately 110 new positions created by our operational expansion at Nuriootpa and Karadoc, reducing the overall impact to around 190 positions.

"Everyone affected by these changes will be treated with the utmost respect and fairness and will be offered a redundancy package and outplacement services which are equivalent to or better than the wine industry standard. We will also be encouraging them to apply for other roles in the company including one of the 110 new roles we will be creating. Applications from employees affected by these changes will be given priority," Ballard said.

Ballard confirmed that the Denman, Great Western and Seppeltsfield wineries, which all see some change under the new plan, would remain significant winemaking centres for Southcorp.

He said: "Denman winery will continue to make wines from the fruit it sources from the Hunter, Mudgee, Orange and other regions of NSW. Our Great Western winery will continue to make our Seppelt table wine range from Victoria as well as all of Southcorp's Method Champenoise wines. Seppeltsfield will continue as the company's premium fortified wine production and maturation centre.

"Southcorp will continue to rely on its 1,000-plus growers across Australia as trusted and vital business partners. We will continue to require their fruit under our existing contracts. We will work with growers in those areas where the new blueprint will require changes to delivery locations, and it will take time to assess our needs moving forward."

Sectors: Wine

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