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Wine industry profitability continues to show improvements

Media release

28 November 2012

Wine industry profitability continues to show improvements in 2012

Seventh annual financial benchmarking survey confirms gradual turnaround, but industry still has a long way to go

All but the largest New Zealand wineries have improved their profitability during the past financial year compared with results in 2011, according to a new survey.

Vintage 2012, the seventh annual financial benchmarking survey for the New Zealand wine industry, was released today by Deloitte and New Zealand Winegrowers. It tracks the results of survey respondents accounting for a third of the industry’s export sales revenue for the 2012 financial year.

Deloitte partner Paul Munro says wineries in all but the highest revenue band (more than $20 million) have improved profitability on their 2011 results and all but the smallest wineries ($0-$1.25m revenue) are turning a profit in 2012.

“It’s very pleasing to see that the Vintage 2012 survey results continue to support the signs of a turnaround within the industry which began last year. But there is still some way to go to be at a point where the financial returns are appropriate to the capital invested,” Mr Munro says.

Another positive sign is that the issue of high levels of external debt does not seem as prominent as in past years, with debt reducing to more acceptable levels. It appears that the industry has responded to pressure from lenders for wineries to reduce debt levels.

“However with over 50% of total sales in export markets, the high New Zealand dollar continues to be the number one issue facing the industry according to the survey,” he adds.

Philip Gregan, CEO of New Zealand Winegrowers, says 2012 saw a markedly smaller grape harvest than the previous year and with this reduction has come a changed supply and demand balance.

“After enduring the global financial crisis and recent years of supply demand imbalance, there are signs of a new optimism emerging as we see another year of generally positive movements in winery profitability,” Mr Gregan says.

“With wine exports now worth in excess of $1.2 billion per year, strong and growing demand for our branded products and reduced supply from the 2012 vintage, this should provide further opportunity for improvement in winery margins in the year ahead.”

The most profitable category in this year’s survey was wineries earning $10m-$20m in revenue, with an average profit of 17%. This marks a return to historical levels of profit for this category prior to a dip in 2010, and is partly due to having the lowest overhead and interest costs.

The next most profitable category was the largest wineries, earning more than $20m in revenue. The group’s average profit was 11.1%, down from 15.3% in last year’s survey, due partly to reporting a change in the mix of case sales to bulk wine sales.

Mr Munro says the 2012 survey indicates that profitability generally increases with size ranging from a loss of 5.5% for the smallest category to double digit profits for the largest categories.

With the reduced harvest in 2012, primarily attributed to seasonal conditions, the supply and demand balance has shifted markedly from the bumper crops of previous years, causing some industry nervousness of too little grape supply rather than previous years’ worries of too much.

“It is important for the sector to continue to focus on the growth in value, rather than the volume, of sales. With the supply shortage from vintage 2012 it is apparent from anecdotal reports that new vineyard investments are being considered. Such investments need to be carefully assessed to ensure they are strongly market led and there is no repeat of the supply demand imbalance seen in recent years,” concludes Mr Munro.

ends

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