Challenging First Year for Wine Producer
Challenging First Year for Wine Producer
The new wine producer Waipara Hills has come through a challenging establishment year with a higher deficit than projected but the company’s brands achieving success in the domestic and international market.
Contract-managed vineyards at Waipara are on schedule with the first fruit projected in 2004. During the year ended 30 June 2002, the company produced a range of wines from grapes grown in Marlborough and Canterbury.
Vintages set out in the mid-2001 prospectus for the public share offer at 88 tonnes for 2001 and 192 tonnes for 2002 have been met.
It is too early to confirm the volumes related to vintage 2003, which is likely to be slightly lower than projected because of recent adverse climatic conditions however production is estimated to be around 250 tonnes, compared with the prospectus projection of 270 tonnes.
The company’s sales and bottling programmes were delayed one month in the 2002 year by the extension of the public offer. The higher costs of the share issue were also a factor. As well, the company also faced an unexpected challenge when their initial national distributors exited the industry.
“While it took us some months to secure the services of Glengarry Hancocks Ltd, the short-term negative effect on our sales programmes can be viewed against the long-term advantage of having now appointed a strong and well-established national distributor,” says the chairman, Mr Syd Bradley.
A UK agent is appointed to import and distribute Waipara Hills’ wines throughout the UK and negotiations are under way with other internationally-based wine importers in Australia and the USA.
Operating revenue for the start-up year, comprising a ten months’ period, was $405,520. The net deficit of $999,048 was $135,369 above prospectus projection and due primarily to equity raising costs exceeding projections, the delay in starting date to 1 September (which also affected bottling schedules and revenue streams) and operating costs exceeding projections.
Mr Bradley says directors and management worked hard through the establishment period and, being “naturally dissatisfied” with the financial results, have taken a number of steps aimed at reducing costs and keeping 2003 expenses as projected in the prospectus.
The focus is now on successfully concluding further international distribution agreements.
Mr Bradley says the board has arranged short-term bank accommodation to provide the additional funding needed to cover production growth and has also agreed to issue $150,000 of convertible notes to an existing investor during the year to 30 June 2003. Directors are also considering redeploying funds invested in the Langdale Road property towards working capital. In such an event, directors would look to ensure existing shareholder club entitlements were protected.
A key objective for the 2002 financial year was to advance the company’s plans for a joint venture winery in the Waipara area. Mr Bradley said several sites selected for investigation had not met requirements and recent industry developments had allowed the company to reconsider its options.
The chief executive, Mr Lew Stribling, says the intention to establish a wine making facility in Waipara by vintage 2003 has been extended to 2005. Waipara Hills has arranged for Blenheim-based NZ Wineries Ltd, to process and manufacture the 2003 fruit from Marlborough contract growers, under the supervision of the consultant winemaker Mr Alan McCorkindale. When NZ Wineries Ltd proceed with plans to build a wine making facility in Amberley (currently envisaged for the 2005 vintage), Waipara Hills will lease wine making facilities there.
Mr Stribling says Alan McCorkindale and a St Helena Wines’ team produced excellent results in the 2002 year.
The 2001 Riesling was awarded a gold medal at the Air New Zealand Wine Show.
The 2001 Pinot Noir was named “the best value Pinot Noir in New Zealand” by Wine NZ magazine.
The 2001 Marlborough Sauvignon Blanc was second equal in Wine Magazine’s UK tasting of over 80 NZ Sauvignon Blanc wines.
Since balance date, the 2001 Reserve Pinot Noir has won gold at the Romeo Brogato NZ wine growers’ show, a silver medal for the 2001 Reserve Chardonnay at the Australian Small Winemakers’ Show, a silver medal for the 2001 Waipara Hills Pinot Noir at the Air New Zealand Wine Wards 2002 and two Sydney International Blue-Gold awards for the 2002 Riesling and 2001 Reserve Pinot Noir.
In the UK the company’s agent New World Wines had set about to develop the company’s brand. There had been opportunities in the US, Canada and European markets but lack of production volume is a restraint at this point in the company’s growth. From vintage 2002 and 2003 steady growth is expected in export sales, says Mr Stribling.
The Japanese market is also a medium-term target and the company is developing relationships ahead of he greater export volumes projected from 2004 onwards.
Total assets stand at $2,180,313. Current assets stand at $1,280,460 and non-current assets at $899,853. Total liabilities are $241,861 of which current liabilities represent $172,861. Net assets stand at $1,938,452.
Mr Bradley says the company intends to maintain a cost-effective internal regime while keeping product quality high and taking all feasible opportunities to reach critical mass as early as practicable.
“Subject as always to the vagaries of the weather, we are confident we can achieve our original bottom line prospectus projections for the year ending 30 June 2003.”
Last year the company projected a small $99,000 deficit for 2003, with steadily rising profitability from 2004 enabling commencement of dividends from 2006.