Profitability rises across all winery sizes in 2014: report

Profitability rises across all NZ winery sizes in 2014, new survey shows

By Fiona Rotherham

Dec. 23 (BusinessDesk) - The turnaround in the New Zealand wine industry has continued this year with improved profitability across wineries of all sizes, according to the 9th annual financial benchmarking survey released by Deloitte and New Zealand Winegrowers.

Vintage 2014 tracks the financial results of wineries accounting for more than 40 percent of the industry’s export revenue for the 2014 financial year and shows a trend of increasing profitability that has been building for the past four years. The wine industry has an estimated annual turnover of some $2 billion, with $1.3 billion of that in export earnings.

Deloitte partner Peter Felstead said for the first time since 2007 every category has been profitable before tax, ranging from 3.3 percent returns to 17.6 percent. That’s despite the high dollar which is ranked by survey respondents as the biggest issue they face.

“The survey results underpin a renewed optimism in the wine industry after a period of supply imbalances, high external debt levels, the global financial crisis and impacts of bulk wine sales,” he said.

There was another record harvest of 445,000 tonnes of grapes, up 29 percent on the record 2013 vintage of 345,000 tonnes. But this didn’t lead to any significant increase in winery inventory levels this year.

The industry seemed to have learnt from its past experiences with oversupply and has been able to sell increased production without having large volumes remain on hand, Felstead said.

Profitability increased with size. The most profitable revenue band in this year’s survey was the larger wineries with more than $20m in revenue whose average profit was 17.6 percent of sales. This was followed by the $10 - $20 million category at 13.7 percent, the $5 - $10 million category at 7.2 percent, and the $1.5 - 5 million and $0 - $1.5 million categories at 3.3 percent each.

In general, the survey shows larger wineries can achieve economies of scale while it’s harder to generate acceptable returns at the smaller end of the market, Felstead said.

Previous surveys have mentioned that a gross margin of 50 percent is generally regarded as necessary for a winery business to be sustainable but this year’s survey results show this traditional measure may now be closer to 40 percent, which if overhead levels are managed well, is likely to return a net profit of 10 percent or more. The highest gross margin of 45.7 percent this year was in the $10- $20 million category.

The other two most important industry issues respondents listed was marketing product overseas and excise and other levies.

(BusinessDesk)

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